We are in a Bear Market

Forget about what the financial press said on Friday and Saturday with The Wall Street Journal headline of May 22 screaming “S&P 500 Briefly Dips into a Bear Market.” The story below the headline noted that on an intraday day basis the S&P 500 was trading 20% below its all-time high reached on January 3. There is nothing magical about a 20% decline defining a bear market. In the 1990’s while I was Chief Equity Strategist at Salomon Brothers, I helped popularize the notion that a retreat of 20% by a broad market average constituted a bear market. A 20% decline was not a hard and fast definition, but rather a rule of thumb. There is little difference between the 18.7% decline on Friday’s close and 20%.

 

Further evidence that we are in a bear market is that the Dow Jones Industrial Average has decline for eight weeks in a row. The last time that streak happened was in 1932. The S&P 500 has declined for seven weeks in row, the first time that happened since 2001. Needless to say, both 1932 and 2001 were bear market years. Just to note a bear market is also defined as a sustained drop in stock prices from its recent high.

 

Indeed, if you look at the 29% decline in the NASDAQ Composite, the 27% decline in the Russell 2000 and the 21% decline in the Wilshire 5000; stocks as whole are deeply in bear market territory. Further the 50%-90% declines in a host hitherto high-flying and non-earning technology stocks reminiscent of the 2000-02 bear market and the break the SPAC stocks, a dubious Wall Street invention, the carnage is visible for all to see.

 

Further evidence of the bear market is the fact that recent market favorites such as large cap technology and consumer staple stocks were taken out and slaughtered over the past few weeks. Remember when the police raid a whorehouse, the good girls and the bad girls alike are taken in the paddy wagon.

 

Adding to the carnage is the collapse of the crypto currency market. Total global losses there are estimated at $1.5 trillion with some so-called stable coins rendered worthless. More than a few hedge funds were caught off-sides in this market which converted their losses in crypto currency into margin calls against their stock positions. Even legendary investor and longtime bull on Bitcoin Bill Miller on CNBC admitted to selling part of his position due to a margin call.

 

So, forget the headlines, the carnage all around us is obvious. How long the bear market will last and how deep it will be remains unknown. However, my guess is that we are closer to the end than the beginning in terms of price, but not necessarily of duration. My biggest worry remains that the stock market decline is signaling the start of a new thirteen-year economic cycle bringing with it heightened uncertainty. (See: Shulmaven: The U.S. Economy is Entering a New Thirteen Year Cycle )