Special Economic Report: April 23, 2020

Is the bear market over, and a new bull market has begun?

The Dow, on March 26th, after just 11 days in bear market territory (the shortest bear market ever), came roaring back to close up by 21.3% from its lowest close, officially exiting its bear and beginning a new bull market.

The S&P followed suit on April 8th, closing up 22.9% from its lowest close to begin its new bull market.

Then on April 14th, the Nasdaq did the same, closing up 24.1%, ending its bear and beginning a new bull market as well.

And it looks like there’s a lot more upside to go. I believe we will have stops and starts over the next 3 months and it will depend on whether you believe the glass is half full or half empty. Science and medical performance will dictate how quickly and confidently Americans will be going back to their normal life.

In a study of the top 10 bear markets (using the Dow), the rallies that followed have been spectacular. Within a year after a bear market, stocks surge on average of 44.7% and go on to gain on average 66.3% by year 3.

Following the biggest bear market in that study (10/2007-3/2009 during the housing/financial crisis, aka the Great Recession), the market gained 63.4% in year 1; 100.6% by year 3; 153.6% by year 5; and more than 357% during the entire 11+ year bull market. But it’s worth noting that our economy and financial system back then were on pretty shaky ground and that’s what led to the pullback.

A starkly different situation leading up to this one. In fact, the economy going into this was called the strongest economy of our lifetime with 50-year low unemployment, 20-year high in household income, and near record high in consumer confidence.
Instead, it was a virus outbreak that caused the pullback. But since the U.S. was in such great shape prior to this, it makes it all the more likely that we will bounce back even bigger and faster. The timing of this needs to be fluid and can change based on our best estimates. Add in the nearly $10 trillion in monetary and fiscal stimulus, not to mention near zero interest rates, and it looks like stocks are thinking beyond the next six months. We are trying not to get too optimistic as we think there will be numerous set backs.

At BWFA, we have moved to reduce exposure to risk in equities and in bonds by allocating to the highest quality investments. We are optimistic in one year the economy will be moving again and we want your investments to take advantage of the companies that will emerge even stronger. In the eye of the storm it is hard to see the horizon but it is more clear today than it was 60 days ago. We have to rebuild our economy one safe step at a time. We are here to help you with this process as it is very painful when you only hear negative news. Please reach out to review your financial future with us to make sure your goals are in place for you and your family.




Robert G. Carpenter

President & CEO
Baltimore-Washington Financial Advisors