Tuesday Tidbit: Being Bullish Pays Better Than Being Bearish

It’s been 554 days since the S&P 500 hit its last all-time high on January 3 last year. That’s a long time that investors have been “down” waiting for the market to recover. This includes a 25% decline in the middle of last year. It’s easy to feel negative, or bearish, about stocks in these times. But last month, we saw a reason for optimism as the S&P 500 officially entered a new bull market — defined as a 20% rally following a 20%+ decline.

Stocks have rallied considerably from their lows currently sitting about 8% below their all-time high. Yet, inflation remains stubbornly elevated and worries of an economic recession persist. Some investors might be unsure if they should be feeling bullish or bearish. Before they decide, it might be helpful to know which one pays better in the long run.

The Pain of Bear Markets — A bear market is defined as a 20% decline from a previous market high. Since 1926, bear markets have lasted 20 months and stocks have fallen by 41% on average.

The Fruits of Bull Markets — Since 1926, the average bull market has lasted 51 months with a staggering average return of 162%.1 If the new bull market were to last as long as the average bull market, it would run until September 2027. That’s a gigantic difference in both length and magnitude of the average bull and bear market.

Did You Know? The term “bull” market was coined by Wall Street for a surging stock market because bulls charge. Meanwhile, a declining market was given the moniker “bear” market because bears hibernate.

What to Expect when a New Bull Market Begins — Historically, the S&P 500 rises 75% of the time over any 12-month period. But following the start of a new bull market, historically stocks have been positive 92% of the time in the next 12 months.2 That’s certainly a reason for optimism looking forward.

The lesson of bull markets versus bear markets feels strikingly similar to the parenting advice I read for my two young kids regarding feeling angry versus acting angry or lashing out. It’s okay for investors to feel bearish (in fact, you can always find a reason to feel that way). Yet, acting bearish or “hitting” the go-to cash option isn’t the best solution for investors looking to achieve their financial goals over the long run.

Enduring bear markets are part of the price of admission for investing. The pain of those bear markets sting. You know what stings more? The risk of missing out on long, lucrative bull markets by acting bearish.

Weekly Tidbit Quote: “The desire to perform all the time is usually a barrier to performing over time.” — Robert Olstein

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John Fischer, CFA®, CFP® | Chief Investment Officer
Mosaic Family Wealth
john@mosaicwealth.com | MosaicWealth.com

1 JP Morgan Guide to the Markets
2 Bank of America

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