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The History of Bull and Bear Markets - Market Watch with RMH

In our recent RMH Market Watches, we highlighted the following topics:

  1. On May 31, 2023, we delved into the earnings of the first quarter of 2023, revealing several positive surprises. You can access the article here.

  2. On May 3, 2023, we emphasized the significance of Time in the Market over Market Timing. The article can be found here.

The analysts' commentary in the media indicates that we recently achieved a significant milestone. What was this milestone? We have witnessed a 20% increase from the market's low point in October 2022, implying that we may have entered a new bull market. Observing the chart spanning from 1956 to May 31, 2023, it becomes apparent that the duration of bull markets is nearly four times longer than that of bear markets. From Sam Ro of TKer and Callie Cox, US Investment Strategist at eToro the following:

  1. "Since 1950, bull markets have lasted for 5.5 years on average — four times as long as bear markets over the same stretch,” she observed. “And over these bull markets, the S&P 500 has gained an average of 183%."

  2. "First, the stock market usually goes up. It doesn’t spend half the time in a bull market and half the time in a bear market. We’re usually in a bull market."

  3. Second, stocks don't always go up, Perhaps it goes without saying. But it’s a reality that is sometimes forgotten during downturns, which are the most difficult times to be invested. As Cox says, “Don’t get too comfortable. Selloffs happen, even in strong bulls.“

The below chart shows the returns for the bull and bear markets from 1958-2022.

The primary takeaway for investors from these charts is perspective. We are wired to be most concerned with the present moment and often forget to zoom out to the bigger picture. Throughout history, bull markets have been longer in duration and their returns have exceeded what has been lost during the bear markets.

The Federal Reserve

At the Federal Reserve's meeting earlier this month, they decided to leave the target interest rate at 5.0%. This marks the first pause after 10 consecutive interest rate hikes. Even though they made no hikes at this meeting, the Fed made sure to make public comments that there is still plenty of work left to do to bring inflation to its 2% target rate.

So why pause hikes if there is still work left to do? Firstly, there is a lag between monetary policy actions and economic effects. Secondly, the Fed is employing a tactic called moral suasion.

What is moral suasion? It is the action of influencing people to behave in a particular way through the way an entity (in this case, the Fed) gives off information. This information could come in the form of the direct actions they take, the tone they use in their comments, their word choice, their body language, their implicit and explicit hints at future actions, and more. Every time the Federal Reserve meets and makes a decision, the large amount of media analysts covering it relays facts, sentiments, and opinions to us. It is through this information exchange mechanism that the Fed is able to use moral suasion to impact the way the general public views and behaves toward the economy.

If there are ever any topics you wish for us to explore, please let us know. We are here to help and guide you through these times.

We thank you all for taking the time and reading “Market Watch.” It is meant as an educational piece on the always evolving markets. It is something we plan on providing every month, and your feedback is very important to us.

On a personal note, RMH is now in the position to bring on new clients so please be sure to share this informational letter with whomever you wish. RMH’s focus is on the customizable investment needs of individuals, families, and foundations. We enjoy working with our clients to better understand their goals, values, and passions for what is important in their lives. In expanding our client base, we look forward to working with people who share these same desires.

Richard Mundinger, CFA

Ashlyn Tucker


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