Be on the lookout for the final two stages of bear market grief — depression and acceptance — before a major new bull market can begin.
Stock investors have a lot more grieving to do before the bear market breathes its last. According to the five stages of bear market grief, we’re currently at stage three. That leaves stages four and five to suffer through; unfortunately, these are the most painful. To summarize, the five stages of bear market grief have parallels to the five stages of grief introduced by the late Swiss-American psychiatrist Elisabeth Kübler-Ross
- Denial
- Anger
- Bargaining
- Depression
- Acceptance
Most investors have moved beyond stages one and two. It’s been six weeks since the S&P 500 satisfied the bear-market criterion and investors’ focus has shifted into survival mode. Investors redirect their energies to figuring out if they can maintain their lifestyles despite the portfolio pullback; retirees rejigger their financial plans to see how they can avoid outliving their money.” The street is bargaining with investors selling the myth that the stock market will be in new high territory by year-end. In other words, this bear market isn’t so bad after all. This is a classic “bargaining” perspective. As Kübler-Ross pointed out, in the bargaining stage we attempt to regain control over a situation by exploring an endless number of “what if” and “if only” statements. Yet trying to control a bear market is laughable. As she argued, this stage in effect is nothing more than a defense against feeling pain. There aren’t only psychological reasons for why we shouldn’t take too much solace from the quick recoveries from the past four decades’ shallowest bear markets — a sample that, per Detrick’s calculation, contains just four examples.
- In the September 1976 to March 1978 bear market, the S&P 500 lost 19% but, according to Detrick, it took 17 months to recover that loss. If you take inflation into account, recovery took a lot longer: according to my calculations of the S&P 500’s dividend- and inflation-adjusted return, it took almost four years for the stock market to dig itself out of the hole created by that 1976-78 bear market.
- Shouldn’t the Federal Reserve be acknowledged for helping the stock market recover quickly? Take the February-March 2020 bear market, for example, which far exceeded the 30% loss threshold. Nevertheless, complete recovery took just five months, and the Fed’s extraordinary stimulus deserves the lion’s share of the credit. In fact, one could argue that the dominant factor behind this quick recovery is the Fed, rather than the magnitude of the prior bear market’s loss. This possibility is especially important to keep in mind now, since far from easing monetary conditions the Fed is taking away the punch bowl. The bottom line? It’s possible to slice and dice historical data in many different ways to support predetermined conclusions. If our analysis is on target, be on the lookout for the final two stages of bear market grief — depression and acceptance — before a major new bull market can begin. NN: this present stock market rally will end in tears…. Hopefully not for us since we are shorting against it. Its a new low for missinformation. to suggest the US is not in a recession and That run away inflation is not real is insanity…