24 mei 2022
18:19
–
Although many stock indices do not officially indicate a bear market – a drop of 20 percent – the feeling prevails that the markets are in full gloomy mood. The big question is: what can help the stock market recover? “This won’t be over soon.”
–
It has been no fun on the stock markets for weeks. Certainly not in the US, where the Dow Jones stock index closed for the eighth consecutive week with a weekly loss last Friday. For such a loss series, we have to go back to 1923. The S&P500 index has lost seven consecutive weeks, which is due to the dot-com crash in 2001.
–
No wonder investors are captivated by the infamous bear, the polar opposite of the rushing bull. Officially, a bear market occurs when an index trades 20 percent below its previous high at the close of the trading day.
–
The essence
- The S&P500 index flirted with an official bear market last Friday, a 20 percent drop from its previous peak. The Nasdaq is already in it.
- Bear markets are often accompanied by recessions. Of the 14 times the S&P 500 has fallen at least 20 percent in the past 95 years, 11 recessions have occurred within the year.
- Market watchers typically associate the bottom of a bear market with investors throwing everything out. According to market strategist Philippe Gijsels, we have never seen such a capitulation.
–
–
By that definition, the US technology exchange Nasdaq has been in a bear market for a while, but the broader S&P500 has not yet. The latter narrowly escaped last Friday. During the trading day there was a drop of 20.6 percent since the top on January 3, but by the close it had fallen to -18.7 percent. The European indices manage to limit the damage somewhat more, mainly because fewer technology stocks are trading here, which are suffering the most from rising interest rates, the result of the persistent inflation spike.
–
“Apart from the definition – which is somewhat arbitrary – this already feels like a bear market,” says Philippe Gijsels, the chief strategist at BNP Paribas Fortis. He refers, among other things, to the slaughter of speculative technology stocks – the ARK Innovation ETF has more than halved since the start of the year – and to the significant losses of crypto currencies.
–
Peter Atwater, who studies the role of trust in financial markets as a professor at William & Mary University, also sees bears lurking beneath the surface. ‘Investor confidence has been crumbling for just under 1.5 years. Then there was an exceptional mania around meme stocks like GameStop and cryptocurrencies. Today they are being massacred. Recently, large stocks such as Apple and Amazon have also been hit by the declining investor confidence. That points to a sense of vulnerability among investors that threatens to trickle down to the real economy.’
–
recession
That is not new. Gijsels emphasizes that bear markets are often accompanied by recessions. Of the 14 times the S&P 500 has fallen by at least 20 percent in the past 95 years, 11 recessions have occurred within the year. Conversely, only 3 out of 14 recessions in that period were not associated with a bear market.
–
We have absolutely not seen a capitulation of the investor today.