Three Types of Bear Markets - 2020

Three Types of Bear Markets

Here's what you will learn:

Structural Bear Market:
Learn how Structural Bear markets are triggered and how they are defined. How do structural imbalances and financial bubbles play a part in this type of bear market.

Cyclical Bear Market:
Learn the functions of Cyclical Bear Market and how rising rates, impending recession, and falling profits play a part with this type of bear market.

Event Driven Bear Markets:
Learn what triggers event driven bear markets and why do they NOT lead to a domestic recession. Why is this type of bear market vulnerable to trade and geopolitical events.

COVID-19:
Learn why the current economic conditions fit nicely into an Event Driven Bear Market. However persistent macro uncertainty can introduce structural risk.

Equity Performances with these 3 types of Bear Markets:
Learn what the average length and average draw-down of each Bear Market type. How does the equity performance look after entering Bear Market territory.

Transcript

Welcome to my inaugural video series called my two cents. My name is Lon Brodky, I'm a senior partner with pines wealth management in St. Louis. And I'm so excited to be able to present this video series to our clients are thought with in doing these short videos is to sort through the headlines of the previous few weeks and talk about topics in those headlines that we feel are important for our clients to know about and to possibly to integrate with their financial plans. Well, I had hoped to start this video series under better circumstances, but unfortunately COVID-19 has gotten in the way over the last six to eight weeks, investors have been dealing with COVID-19 in their own accounts, and that's where I want to start with this. This week's video is COVID-19 and bear markets. What's the relationship Are we in a bear market? If not, are we going to enter into a bear market with last week's announcement that US GDP growth, real GDP growth in the first quarter of 2020, our economy actually contracted 4.8%. You compare that with the fourth quarter where our economy grew by 3.1%. I would like to tell you that that number last week shocked me. But it didn't. When you have any economy that's humming along nicely, and the quarter, and then in the last month essentially comes to a virtual standstill. That's the number that you're going to get. And I suspect that second quarter numbers probably going to be worse. But let's get back to talking about COVID-19 and bear markets. First of all, let's define what a bear market actually is. Can't talk about types of bear markets without defining what actually is a bear market. Its definition when the equity markets drop more than 20% from its most recent high, that's a definition of a bear market. And we typically characterize bear markets in one of three ways. First way is a systematic bear market or structural bear market. Second way we would characterize a bear market as its as it's being cyclical, and the third being event driven, and let's talk about each. So we just talked about what a bear market is, but in a structural bear market, you find that that type is longer in length, and deeper in it's drawn out, typically lengthwise you can expect anywhere from 40 to 60 months as far as a length. A drawdown you can expect in the equity markets to see in excess of 50 plus percent structural bear markets don't Know how deep and how far they go, they typically don't reveal themselves until after a period of months. Most recent example I can think of as having a structural bear market of us experiencing a structural bear market was 2008 2009. And it typically in these types of bear markets, you will see some sort of financial bubble in 2008 2009. It was the housing bubble. But once again, we did not know the extent of the housing bubble until many months after the bear market actually started. And oh, by the way, these bear markets do not have a starting point and do and never announce an ending point. You won't know when we've entered in to an exit out of a bear market until many months after. But a second type of bear market that we see is cyclical, and a cyclical bear market is shorter in length, and its drawdown is less than what you would see In a structural bear market typically that bear market or cyclical bear market lasts anywhere from 25 months to 4040 months could be more could be less drawdown is average around 30%. And cyclical bear markets have different characteristics in that they typically are in a rising interest rate environment, and you'll also see corporate profits starting to be reduced. And while we're not in a rising interest rate environment, corporate profits are bound to be affected by COVID-19. In fact, you're already starting to see that a number of corporations over the past week or so, we have seen lower their second quarter earnings expectations. In fact, a few corporations have given up their earnings announcements all together or have not even released their ex affectations for the second quarter all together. But the third type of bear market that we've seen is an event driven bear market. And as you would suspect, its name is exactly as you think it is. COVID-19 fits very nicely into that event driven bear market. Other types of events that may lead into bear markets that I can think of right off the top of my head oil prices. You saw that a couple weeks ago when oil prices nosedive that could potentially lead to a bear market. Another topic that could or another event that could be that could lead into a bear market tariffs we saw and dealt with that in 2018. But the bigger question I think in front of investors right now is can event driven bear markets lead into the deeper and more serious cyclical or even structural bear markets. And at this point in time, we simply don't know there's not enough evidence And until we have the evidence which we won't get until well after the fact, we are not going to try and prognosticate or even try to to come to the conclusion that we are going to enter into or have entered into a cyclical or a more serious structural bear market you simply don't know at this point. But rest assured we will stay on top of the financial headlines, we will stay on top of the economic data and make sure that you are on track with your financial goals. And we are in the appropriate investment strategy to reach those financial goals. Please follow us on social media through Facebook, through Twitter or through LinkedIn. And you can find more information on our website at www dot pynes wealth.com. You can also schedule an appointment with us through our website to talk with us about more about this topic or other topics that may be a top of mind team. Stay say Stay healthy. Thank you for taking the time to watch this video. I hope to be presenting more videos to you in the coming months and we'll talk to you soon 

Transcribed by https://otter.ai