Equity markets go through periods of bull run followed by mauling by the bear for some time. Then the bull market returns followed by bear market again. This cycle continues over the years and decades. The duration of bull and bear markets vary but traditionally the bull has stayed longer than the bear as we saw in a post yesterday.

There is never a perfect time to invest. There are always some negative factors that would suggest to avoid investing in stocks at that time. For example, many years ago sovereign debt crises in Europe lasted over years in phases. Currently a few of the adverse factors that investors can worry about include soaring inflation, rising interest rates, climate crisis, etc. In the past, US equity market ploughed through many crises. When viewed over many years or decades, those major crisis events look like a small blip in the performance of markets.

The following chart shows the performance of S&P 500 index from 1936 to 2021 with major crisis events marked:

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Source: Managing Market Volatility, Russell Investments

The key takeaway is that volatility in the markets is normal and so is bear markets. Investors with a long-term outlook can take advantage of stocks on sale – provided they do the due diligence required and not go all in.

Related ETF:

SPDR S&P 500 ETF (SPY)

Disclosure: No positions

US equity markets were up big yesterday. However we are still in a bear market and after weeks of down days it was more of a relief rally. Moreover volume was lower than average for a few stocks I looked at. Stocks going up on low volumes is not a strong indicator of the strength of the rally. Even if we ignore the rally yesterday and take a high-level overview of the markets, bear markets do not last forever, Historically stocks tend to go higher in the long term as measured in years and decades. While stocks can be volatile in the short-term, ultimately volatility subside and stocks restart their upward trend.

With that said, a recent article at Schwab noted that bear markets tend to be shorter than bull markets based on their research since the late 60s. From the article:

Historically, the stock market has always returned to its previous peak after a bear market, usually within a few years. The Schwab Center for Financial Research looked at both bull and bear markets for the S&P 500^® Index going back to the late ’60s and found that the average bull ran for about six years, while the average bear market lasted roughly 15 months. The longest bear market lasted about two and a half years. The shortest was the pandemic-fueled bear market in early 2020, which lasted a mere 33 days.

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Source: Bear Market: Now What?, Schwab

While it is impossible to predict when the current bear market will end, it is a wise idea to monitor the market and take advantage of cheaper prices. One way to gain exposure to the boarder market is via the SPDR S&P 500 ETF (SPY). However for investors that already own individual stocks, a smart strategy is to follow the Dollar Cost Averaging model and nibble when markets decline heavily.

Below are a few stocks that investors can consider for further research and consider for potential investment:

• General Mills Inc (GIS)
• Lear Corp (LEA)
• Canadian Pacific Railway Ltd(CP)
• Edison International (EIX)
• General Dynamics Corporation (GD)
• Bank of Hawaii Corporation (BOH)
• Cullen/Frost Bankers, Inc. (CFR)
• TELUS Corp (TU)
• Amphenol Corp (APH)

Disclosure: Long GIS

We looked at the case for staying invested in foreign stocks in an earlier post. In this post, let’s review a chart showing the importance of staying invested in US stocks as represented by the S&P 500. From 1992, though the index has had many years of big intra-year declines, the S&P 500 had positive returns in 25 out of the past 30 years.

S&P500 Intra-Year Largest Declines and Year-end Total Returns 1992 to 2021:

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Source: The Power of Perseverance, Franklin Templeton

Related ETFs:

1. SPDR S&P 500 ETF (SPY)
2. iShares Core S&P 500 ETF (IVV)
3. Vanguard S&P 500 ETF (VOO)
4. SPDR Portfolio S&P 500  ETF (SPLG)

Disclosure: No positions