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It’s a Bear Market

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I hope everyone had a good Christmas. I’ve been slow to write about the stock market for two reasons. The first is that it would ruin the holiday cheer, and the secondly this is a long developing story that I have written about for a year now and will probably write about for the next year.

But we’ve reached an important threshold. It’s now down 20% off the peak, meaning that we are in a Bear Market. We haven’t been in one for a decade, and there hasn’t been a nasty one for at least two decades, so let’s run down what that means.

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Risk and Reward

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The basis of any capitalist or free market system is risk analysis. Every investment, whether in time or capital or short-term inventory is made based on the potential reward for success and the potential risk of failure. Because these events happen in the future, confidence or anxiety often play a large role in the process.

Generally speaking, it’s all about the availability of the critical resource being invested. People with nothing left to lose often put their time into a project because their time is all they have. Capital markets flush with cash are often looking for places that will give them a big return. Yet in all of these cases, emotions eventually become important.

Lately, nerves are raw. Investment? You gotta be kidding.

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It’s a Downer Kinda Thang

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“Never forget that the stock market is just a market for stocks.”
– Herman Miller, an old accountant I knew when I was a kid

The bloodletting on Wall Street may have paused, but no one is taking any chances. We’re not technically in a bear market yet – the S&P500 would have to break its resistance around 1863 before that happens. But the world is braced for it. Morgan Stanley has told its investors to hold on at least into the third quarter – exactly what Barataria said a few weeks ago.

Why all the negative sentiment? After all, China’s loss can only be our gain if you believe what you hear in politics. Then again, investors aren’t that gullible. It’s one big financial world and what goes ‘round comes ‘round. While there are some good reasons to take a six month or so pause, most of the reasons for this downturn are indeed lousy. It’s time to run through, and over, these arguments.

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About That Rate Increase …

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The stock market ended down for a sixth day in a row, with the S&P500 at 1869. It’s right at the low from last October of 1862, meaning that we either find support here or look out below. To date, it’s off 12.2% from its 2130 peak.

The bloodletting has one thought on everyone’s mind, at least the one thing other than “When does it stop?” The question of the day is “Does this kill the Fed’s desire to raise interest rates?”

The market was betting against a rise before, and it’s more convinced than ever that a rise in the Fed Funds Rate is not coming. But there should be a rise for one very strange reason – it may actually lower interest rates and stimulate the economy. Seriously. We’re still in Bizarro Economic territory and this could be the moment we finally get out of it.

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Stock Panic?

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“This is no time to panic. There’ll be plenty of time to panic later.”
– Author unknown (but I was sure it was Groucho Marx)

The stock market took a beating today, with the S&P 500 off 2.1%. This came for a lot of reasons but mostly because of a global selloff sparked largely by the ongoing meltdown in China. The question on everyone’s mind has to be, “How bad will it get?”

The short answer is that it can only get worse from here for a lot of reasons. Very few of them matter in the long haul, but who actually believes that the stock market is paying attention to anything beyond next quarter?

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