Mullooly Asset Management

Fiduciary Fee-Only Financial Planner | Investment Advisor in Wall, NJ

bear markets

Two Underlying Causes of Bear Markets

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With the volatility we’ve seen this October, Tom and Brendan took the opportunity to examine two underlying causes of bear markets. We experienced a near 10% peak to trough correction in the S&p 500 this month, but it’s looking like we’re going to finish the month essentially flat. Volatility causes people to worry though. So what causes bear markets to occur? When are we dealing with a routine pullback or correction and when is it something greater? Nothing is absolutely foolproof, but since the 1960’s two conditions have been seen in bear markets. That doesn’t mean it’s impossible for a bear market to exist without the conditions, but it’s pretty unlikely according to the data.

A recent Business Insider article shared a great chart and commentary from David Rosenberg (Chief Economist of Gluskin Sheff). Regarding bear markets, Rosenberg said:

“For stocks, it always comes down to the Fed and the economy. The reality is that bear markets do not just pop out of the air. They are caused by tight money, recessions, or both.”

You can see in the following chart what Rosenberg means.

Business Insider Chart: Two Causes of Bear Markets
Chart featured in 10/28/14 Business Insider article: http://www.businessinsider.com/rosenberg-stock-market-corrections-come-and-go-but-the-bear-market-wont-come-until-2016-at-the-earliest-2014-10

One thing that’s important to stress is that when we do see tight monetary policy, recession, or both market drops can be severe. In the chart above you can see that the S&P 500 has typically fallen 40%+ peak to trough during bear markets. The peak and trough don’t necessarily have to occur in the same year either. Look at 2008’s recession for example. The peak occurred in October of 2007 when the S&P 500 saw 1576. 1475 was the starting point for 2008, but the trough didn’t occur until 666 during March of 2009. We’re talking about big moves in the stock market here.

Using Rosenberg’s assertion that bear markets don’t just happen and are caused by tight money, recession, or both; let’s assess where we’re at right now. Are we experiencing tight monetary policy? Hardly. While the Fed announced the end of quantitative easing today, they’ve given no indication that they’ll be tightening anytime in the “foreseeable future”. Are we experiencing a recession or seeing signs of one in the economy? Not at all. While economic growth hasn’t been robust, it’s still been growth. Like we mentioned earlier, just because we haven’t seen these two conditions doesn’t mean it’s impossible for a bear market to happen. Anything is possible, but we tend to agree with Rosenberg on this one.

Source:

http://www.businessinsider.com/rosenberg-stock-market-corrections-come-and-go-but-the-bear-market-wont-come-until-2016-at-the-earliest-2014-10

What happens in Bear Markets?

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As a New Jersey Financial Advisor, I get a lot of calls from concerned investors about what to do in bear markets. In bear markets: during my time as a money manager, many times (but not always) we see HIGH volatility, violent moves, but — ultimately — we really see no progress.

I received an email from a client here in Monmouth County, NJ, who was curious why her account did not go up when on Wednesday when the market was up nearly 300 points. While I explained her account is mainly out of harm’s way in the money market, it got me thinking.

All equity funds (stock mutual funds) in general are now very oversold. But over the last eight years we have seen these funds become even MORE oversold. These funds have not turned up yet.

The week of May 29 the Dow Jones was DOWN 336 points.
The following week (at the time of this writing) the Dow Jones is UP 334 points.
Two weeks of violent moves both UP and DOWN, and we are right where we stood a few weeks ago. All we did was create more damage on the charts.

Remember, when the trend is bearish (like now), we will often see violent moves up AND down in the market. Sometimes, your financial planner will simply be treading water, not really going anywhere. And, often, investors get “conditioned” to a period of volatility, but overlook the steady grind down of a negative move in the market.

WHY could this market be heading lower?

  • Greece: their possible “eviction” from the euro could spark other countries (Ireland, Italy, Portugal, etc) to do the same.
  • Spain: there is no bailout fund big enough to rescue the financial system in Spain. Spain has the potential to be the great abyss we worried about when Lehman collapsed. A potentially very big deal.
  • Fear the Euro may be dead: pushes people into dollars (a strong dollar could be bad for stocks).
  • There are so many indicators now showing the United States inching very close to a recession. I am stunned so many deny this possibility. it may be referenced as a “soft patch” or a “stall in the economy.”

Lotsa reasons to be worried. But know this: the charts have a good knack for letting us know things are moving (in either direction UP or DOWN).


But know this: WHEN the charts change, we WILL change.
Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.

Bull market behavior vs. Bear market Behavior

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Big differences in the stock market behavior depends on whether the backdrop is bullish or bearish.
Take a look:

 

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.
If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website. Under no circumstances should the content discussed here to be considered specific investment advice.

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.

All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions, or withdrawals may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for an investor’s portfolio.

Volatility in the Marketplace Podcast

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Podcast January 9, 2012

Even though, from a financial advisor’s point of view, the Standard & Poor’s 500 Index was essentially flat (up less than one percent) in 2011, we witnessed the most volatility in recent memory. However, the volatility might NOT be coming from the daily news that so many feel are driving the markets. In Bear markets (and we are in a secular bear market in 2012), there is (often) a tremendous increase in volatility. But the strange phenomenon about bear markets is they typically finish where they began. A financial advisor can help you understand this concept. We also spend time in the podcast discussing why Mullooly Asset Management does not make market predictions and why predictions about the economy and predictions about the stock market are usually a waste of time.

We encourage our readers and listeners to our podcast to consult with their investment adviser before making a decision to buy or sell any investment.

And if you are relying on a podcast for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.

If you do not have an investment adviser in the New Jersey or New York area, we encourage you to contact Mullooly Asset Management at 732-223-9000 or through our website.

Under no circumstances should any of the content discussed on this podcast be considered investment advice.

The Mullooly Asset Management Podcast can be found below. The Podcast can also be found on iTunes. Go to the iTunes Store and simply search for “mullooly.” Under no circumstances should the information contained in this blog or podcast be considered investment advice.

Thank you for listening. We welcome your comments and questions.

Investment Advice: Don’t Panic Stay In the Game

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Weekly Commentary for June 6,2011
You’ve probably read (several times by now) my message that “when the charts change, we will change.”

Well *some* charts are starting to change.  Some charts…but not all of ’em.

In the bigger picture, we need to keep in mind this is a bullishly constructed market.  Make no mistake, we are nowhere near the conditions seen in summer 2008.  Or even last summer, when the market backed up 15%.

So we’re not gonna panic, not gonna head for the hills.

As I wrote last week, if the markets had a downward (or a bearishly configured) look, we would not even stick around, we’d be sitting in cash and talking about the Mets.

Eh, ok, maybe the Yankees.

If you are relying on a blog post for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.

If you do not have an investment adviser, we encourage you to contact Mullooly Asset Management at 732-223-9000, or through our website.

Under no circumstances should the content discussed on this post be considered specific investment advice.

We want to stay in the game.  But – as individual charts begin to break down, we will let them go (we’ll sell).

And as we are selling, we are also raising cash, which tends to slow down the velocity/volatility in your account.
It’s the right thing to do.

Financial stocks and Wall Street stocks have been negative for nearly three months – and – there is no reason to sniff around at them. But that group makes up one of the largest chunks of the S&P 500, and is often a pretty large chunk of most large-cap mutual funds.

If you do not understand the game plan, or what is you going on, you have an obligation to get in touch with us.  You can email us back, or call us, at 732-223-9000 so we can figure a time when you & I can catch up on this.

Market Drop: Could We Have Seen This Coming?

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We encourage our readers and listeners to our podcast to consult with their investment adviser before making a decision to buy or sell any investment.

And if you are relying on a podcast for specific investment advice, you are making a huge mistake. Please speak with an investment adviser before making ANY investment decisions.

If you do not have an investment adviser in the New Jersey or New York area, we encourage you to contact Mullooly Asset Management at 732-223-9000 or through our website.

Under no circumstances should any of the content discussed on this podcast be considered investment advice.

In this week’s podcast, we talk about John Dorfman‘s article in which he discusses the old Wall Street saying “the market climbs a wall of worry.”
But…when stocks (and stock markets) collapse, no one really cares about old stories or sayings. What investors want to know is

  1. Market Drop: Could We Have Seen This Coming?
  2. What Could We Have Done To Possibly Get Out Of Harm’s Way?

Very few (in my profession) have any answer for these questions.

Part of the reason is because so many are conditioned to be “perma-bulls:” they are pre-disposed to staying optimistically bullish, and keeping you invested in some far-off fantasy where everything works out great. Hey, life is not all purple pansies, sometimes things get messy. And sadly, some folks in my line of work get defensive/bearish AFTER the fact, when it is too late. Then they miss the next move.

In repeated conversations with clients, we hear the same phrases:

  • “Tom, we do not like the news/the headlines…”
  • “The economy worries me…”
  • “Tom, I do not like this stock market”

And, as soon as they mention those phrases, they get in a defensive posture.  They are conditioned to hear their adviser tell them “you have to look long term.”

We will not be optimistically bullish 100% of the time.
There are times we want to be IN the market.
There are times we want to be OUT of the market.

The Mullooly Asset Management Podcast can be found below. The Podcast can also be found on iTunes. Go to the iTunes Store and simply search for “mullooly.” Under no circumstances should the information contained in this blog or podcast be considered investment advice.

Thank you for listening. We welcome your comments and questions.