FINANCIAL

BY ADAM SMIT

Digging into

Bear Markets

The U.S. stock market, as measured by the S& P500, has declined more than 20% from the early-2022 January highs. Declines have been fueled by inflation concerns, uncertainty around Federal Reserve policy and its euectiveness, and geopolitical risk in Europe. While volatility can be discomforting, it is important to note that market declines are not uncommon. The term “Bear Market” is often used when stock prices have fallen in value at least 20% from their peak. In vestors should remember temporary declines in stock values are normal and should be expected.

According to LPL Research1, since 1950, there has been ten bear markets (not including the current Bear). The S& P500 Index has seen gains 80% of the time in the three months following the start of a Bear Market with the average return of 3.8% (median return of 5.8%). Twelve months following the start of a Bear Market, the S& P500 has been higher 70% of the time with an average return of 14.8% (median return of 23.8%). LPL Research also notes2 that the average Bear Market decline in the S& P500 (since WWII) when the economy experiences a recession was -34.8% and lasted slightly over 15 months. Bear Market declines, or near Bear Market declines, have seen an average of -23.8% decline in the S& P500 lasting just over 7 months when the economy is not experiencing a recession. The debate is outstanding. Will the Federal Reserve be able to bring down inflation and not cause a recession or will a policy error drive the economy into a recession? How much of the “bad” news have stocks already priced in?

In times of market turbulence it is important to remember some basics in handling the emotions of investing as panic is not an investment strategy. As the famed Peter Lynch is quoted, “The real key to making money in stocks in not getting scared out of them”. Patience is also an investors ally. Warren Buuet is noted with saying " The market is the most evcient mech anism anywhere in the world for transferring wealth from impatient people to patient peo- ple." Don't mistake fluctuation of principal for loss of principal. Losses are only temporary unless you choose to make them permanent.

Bear Markets can be unnerving and psychologically taxing to investors. However, in times of market turbulence it is important to maintain perspective and avoid irrational behavior that can conflict with working towards long-term financial goals. Instead of trying to outwit the stock market's next move, focus euorts and resources on those things that are within your control.

Adam Smit is CERTIFIED FINANCIAL PLANNER™ with Adam Smit Investment Management LLC and a registered principal of LPL Financial. This article is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk includ- ing loss of principal. Securities ouered through LPL Financial. Member FINRA/SIPC.

1 – Posted by Ryan Detrick, C. M. T. (2022, May 24). What happens after a bear market starts? Four things to know. LPL Financial Re- search. Retrieved June 15, 2022, from https:// lplresearch.com/2022/05/23/what-happens-af – ter-a-bear-market-starts-four-things-to-know/ 2 – Posted by Ryan Detrick, C.M.T (2022, May 19th). Six things to know about Bear Markets. LPL Research. Retrieved June 15th, 2022 from https://lplresearch.com/2022/05/18/ six-things-to-know-about-bear-markets/