Saturday, October 11, 2008

Stocks: Bear Market Basics

After learning more about what a Bear Market is and how it may effect the recovery of the Bond Market, I wanted to share what I learned today.

A Bear Market "Correction" is when there is a 10% decline in the S&P 500 stock value and a Bear Market Decline is when there is a 20% decline in value.

The last Bear Market was from 3/24/2000 to 10/09/02 and there was a 49% drop in Stock value. During the last Bear market we had to deal with terrorism and the attacks on the U.S., and the dot com bubble bursting.

The average Bear Market lasts for 12.3 months, with an average decline in Stock value of 32%.

This Brutal Bear Market began 10/09/07 (yes 10/09!) and as of yesterday is now 1 year old. Stocks have declined a staggering 41%.

Many analysts and market observers are saying that this Bear Market is different because we are dealing with liquidity issues in the marketplace and non performing mortgages. Yes, this is a new problem we are facing, but it's always something new, just like the dot com situation and terrorism attacks on U.S. soil hadn't been seen before the last Bear Market.

It helped me to put things into perspective: This Bear market is worse than average, but not as severe (41% vs. 49% value decline), nor as long lasting (12 months vs. 30 months). Hang in there! It WILL get better!

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