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Is it the End of the Bull Market?

| May 13, 2022

Market volatility is inevitable, and yet, every time it appears in the headlines, you can count on an investing expert announcing the end of the bull market. Is it true? After over a decade of bullish behavior by stocks, will the bear market finally take over?

In March 2020, uncertainty around the pandemic caused stocks to nosedive, and politicians’ efforts at reassuring investors went unrewarded. Amid interest rate cuts and speeches blaming other politicians, the market continued to drop.

But it was short-lived; markets returned to pre-crash levels by just four months after the initial drop, with markets enjoying markedly bullish traits again in July 2020. Some experts say it’s the shortest crash in economic history.

What Defines a Bear Market? A bear market tends to occur roughly once a decade; its incidence is much rarer than a bull market. They often, but not always, indicate a coming recession. And it differs from a correction because of its severity; stocks dive at least 10% from a recent high when a bear market is occurring.

How Does a Bear Market Affect my Portfolio? A typical bear market will last less than a year, but will wipe out about 34% of the stock market’s value. Even so, that doesn’t mean it’s time to pull cash out. Here are a few ways to think about in a bear versus a bull market:

Take a Long-Term View: The stock market is not meant for short-term money. If it’s cash that you will need access to in the next few years, you should consider another type of investment. Making an investment in the stock market is about choosing companies that have solid management and are currently undervalued with potential for growth. When you invest in these companies, you’re watching how they grow over years, not months or days.

Consider Speculative Value: Before the 2000 bust, there was a lot of investment made in tech companies with little or no earnings, no business plans or revenue. You might notice similarities to the current excitement around cryptocurrencies; valuation is speculative. It will take time and patience to determine where the value lies with cryptocurrency and where it is not warranted.

Hang Tight: The stock market continues its downward trend, inflation is over 8.5% and interest rates are increasing. It can be tempting to make big changes as a reaction to headlines reporting volatility. But choosing to invest in companies that are able to navigate circumstances like inflation and interest rate increases will experience an eventual increase in stock prices.

If you would like to talk over your portfolio and how to weather both bear and bull market conditions with peace of mind, contact us at Heritage Investments.