Bull Market Has “Short-Circuited”; History Offers Reassurance

Bear market volatility can be violent – but it’s important to remember that a rebound has historically always followed.

This week has been challenging for even the most pragmatic investors. Concern and anxiety has understandably arisen as investors attempt to decipher what the spread of COVID-19, the president’s declaration of a national emergency, and the barrage of market news might mean for their families, the economy and their portfolios. Chief Investment Officer Larry Adam summed up the current environment this way: “The 11-year bull market, which ironically celebrated its anniversary on Monday, has ‘short-circuited’ due to coronavirus fears.”

The whiplash in the equity markets may seem unprecedented, but it’s important to recall that markets have endured – and recovered from – crisis events in the past, reminds Managing Director of Equity Portfolio & Technical Strategy Mike Gibbs. Moreover, the markets are forward-looking, and Gibbs believes that much of the bad news is likely already priced in. While the current market instability is unnerving, Gibbs doesn’t believe we’ll see outcomes as economically extreme as what we saw during the credit crisis or the 1973-74 oil shock.

Bear market volatility can be violent and subsequent rallies can be sharp. Markets tend to overshoot, both in periods of euphoria and slumps, although downturns can often be more dramatic, Gibbs cautions. On average, we’ve seen upward spikes of 15% to 21% within 30 to 60 days after the market reaches a bottom. It’s encouraged that you avoid reacting hastily, as investors on the sidelines may miss out when the markets eventually rebound.

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Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of Raymond James and are subject to change. There is no assurance that any of the forecasts mentioned will occur. Economic and market conditions are subject to change.