A Very Short History of the Bear Market

In retrospect we’re all geniuses.

Anyone can look back on a chart and see when a market turned. But not everyone can call a bottom in the middle of the event – and no one can do it consistently. Those who claim such knowledge usually have names that rhyme with “Made-off”, as in “with your cash”. For the rest of us, we’re stuck with charts and other such crutches. 

So in genius-mode, we turn to the S&P chart to review recent events in the market. In October 2007 we saw the market peak. It’s been a downward sloping roller coaster ever since. The first downleg was the Nov 07-Jan 08 move. It was enough to scare investors, but not enough to raise public outcry against investment bank bonuses.

As the months wore on, the market entered into an extended trading range whose limits were tested on the downside in March 08 and the upside in May 08. I remember reading Forbes at that time where publisher Rich Karlgaard pronounced we would not have a recession. He was wrong. But then again, I’ve been wrong about the market many times as well – all geniuses are.

Then the 1-2-3-4 punch happened. The first was the summer swoon.  It was less of crash and more of a slide out of the trading range. That bottom happened in July and many investors thought it was over. All eyes turned to the Beijing Olympics and irrational hopes brought some investors off the sidelines back into the fray.

The second blow came with Lehman Brothers. Their September 15, 2008 bankruptcy brought with it the sharpest decline yet. In case you’re looking for that on the chart, it’s where the chart resembles scissors shredding investors portfolios to pieces. That uncomfortable whipsaw was followed by another decline (#3) in November – a low point in investor confidence. But with a new President elected and Obama’s seeming renewed efforts to stabilize the economy – before he even took office – buyers re-entered the fray. Bush’s final days in office witnessed a slight recovery.

Then  #4 punch happened. This move happened after the inauguration. The new President, on a mission to pass a near-trillion dollar stimulus package, couldn’t help being negative about the economy. The market heard him. Taking out the November lows, the S&P fell  further than most would have imagined two years ago in early-March 09 – possibly the Bear Market low.

The question gnawing investors minds is that last clause: has the market put in a bottom? Will the rest of the geniuses look back and see another downturn even worse than March’s. Looking back at the chart, there’s a certain beauty to the current uptrend. The Financial Times suggests the interbank lending rate falling to a record low last Tuesday is a strong sign of recovery.  Yet in that same article, there were more reasons not to mortgage your house (if you still have one) and bet on the market.

I’ll leave that wager to someone smarter than me. I like where I live.