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Equity Bear Markets: When To Buy? – April 6, 2020

A just-published report from MRB Partners examined previous U.S. equity bear markets over the past 100 years. A meltdown in equity prices occurs at some point in each bear market. The initial low resulting from the meltdown is typically a reasonably appealing entry point for investors with horizons of 12 months or longer, provided that a prolonged recession does not occur. However, there is typically no rush to buy for those that miss this initial low. U.S. equity prices almost always retest, and often dip mildly lower, before the next bull market sustainably takes hold. Almost all equity bear markets experience a double or triple bottom.

Equity meltdowns are driven by fears of an economic and profit recession, and a prolonged bear phase develops when these fears pan out. The next bull market awaits enough stimulus to fuel the next economic recovery. In between, a bottoming process unfolds. Thus, it is key to determine how prolonged the economic downturn will be and if enough policy support has been provided.

To this end, massive monetary and fiscal stimulus has already been deployed and will provide more than enough support for the next global economic expansion. What is missing, however, is a credible health strategy to make it safe for workers and consumers to return to normal activity. Until then, equities will likely struggle to find a firm footing.