Investing

The 11-Year Bull Market Finally Ends: What Comes Next?

Almost to the day, the 11-year bull market run that started on March 9, 2009, has ended as the markets have slipped into the dreaded bear market condition, signified by a drop of 20% or more. While pundits wring their hands and are providing all the worst-case scenarios, which strangely were not scenarios they oddly mentioned back in January or early February, many investors are becoming extremely worried, and with good reason. The point drop on the Dow Jones industrial average on Thursday was the biggest in history.

The average bear market wipes about 36% off the S&P 500 and lasts for about seven months, according to data compiled by Dow Jones Market Data. If that held this time, it would put the S&P at about 2,200 sometime around September. The stunning plunge in the markets this time has taken many by surprise, as we have dropped an incredible 26.75% since February 19.

The coronavirus concerns have been magnified to the point that the NBA has suspended the 2019-2020 season after a player tested positive for the virus, the NHL has also suspended play and the NCAA has said that the annual March Madness tournament will be canceled for the first time in history. Major League Baseball is in the process of potentially moving games away from cities where the outbreak is worse, in another attempt to keep both the players and the fans safe.

Before the most recent plunge in the markets, we posted a story that helps investors sort out what to do when the corrections start to look like a crash, and we offered some tips to those who are starting to have anxiety over their investing future.

The reality is that many of those infected with the virus are already getting better, and while the incubation period can last up to five days, healthy adults can feel better in two weeks or less. Coronaviruses are types of viruses that typically affect the respiratory tracts of birds and mammals, including humans. Doctors associate them with the common cold, bronchitis, pneumonia and severe acute respiratory syndrome (SARS), and they also can affect the gut.

Those who can be most affected are the elderly with pre-existing conditions ranging from chronic obstructive pulmonary disease (COPD) to diabetes, but these viruses are typically responsible for common colds more than serious diseases. With that noted, many in the medical community feel that the overall picture should start to improve as we enter into spring and warmer weather.

The sheer magnitude of the recent selling this week is reminiscent of the panic in 1987, and also in 2008, when the bankruptcy of Lehman Brothers combined with a glimpse into the abyss for many of the financial firms at the time almost pushed the economy into a depression. Fortunately, in 2020 the economy and the financial institutions are in much better shape than in 2008. In fact, the heads of many of the top firms met at the White House this week with the president to report on the condition of the banking industry. They all reported that their institutions were in good shape to handle the current issues.

“It’s different this time” is a phrase that usually signals the end of bull markets, and we heard a lot of that from the financial news teleprompter readers and 32-year-old equity strategists and portfolio managers who were in college in 2008. With this market it is indeed different this time, but not for the reasons they cited.

This time it’s like 2008 and 9/11 combined. Air travel has been disrupted, vacation plans for the busy spring and summer are up in the air and, perhaps the most unnerving for all of us, is the sheer change in our daily lives that for at least the short term, seems inevitable.

The good news is the U.S. economy is in much better shape than many countries around the world, and while the growth that we have experienced over the past three years is undoubtedly going to slow, the backstopping by the Federal Reserve and by the government will go a long way to keep this from turning into a total downward spiral.

China, where all of this started, is finally reopening offices again, albeit with very strict rules. That is a sign that perhaps things are tapering off as new cases of coronavirus infection slow in China and the country is gradually getting back to work. Authorities and businesses are taking a wide range of measures. Local governments are chartering buses for workers. In addition, some companies are buying out entire hotels to house quarantined staff.

One sign that we may be closer to the end than the beginning is gold, which had a massive run and is now being sold like stocks and bonds. When the proverbial “safe haven” investment is being sold to cover margin calls at hedge funds, you know that a final massive capitulation may not be all that far in the distance. While still painful, it’s a somewhat telling sign.

The old adage that “the market goes up like an escalator, but down like an elevator” has never been more prescient when we wrote about it in January, as that is exactly what we have been seeing since late February. The good news is, like all crises that have affected the stock market over the years, this too will vanish into the rearview mirror at some point.

Lastly, while this is very painful now, and to see one’s wealth battered so fast is indeed unnerving, the future for the United States is very bright. We remain the economic leader for the world and shall remain so long after this event is a distant memory. Sensible long-term investing has always been the key to financial success. Nothing that has happened in the past month has changed that.