A 50% Decline Will Only Be a Correction
The comments below are an edited and abridged synopsis of an article by Lance Roberts
A 50% decline will only be a correction and not a bear market. But how could anyone suggest that a 50% decline is NOT a bear market? Technically, we need an essential distinction between a correction and a bear market.
In March 2020, the stock market declined 35% in a single month. It was a swift decline into an official bear market. But with the massive interventions of the Fed, the reversal of that decline was equally swift.
However, March 2020, much like the 1987 crash, was only a correction. To understand why March was not a bear market, we must define the difference between an actual bear market and a correction.
Up for discussion: Defining a correction and a bear market; what defines a bear market; just a 50% decline; and Fed-driven excesses broke the rules.
Every bear market in history has an initial decline, a reflexive rally, then a protracted decline that reverts market excesses. Investors never know where they are in the process until the rally’s completion from the initial fall.
The deviation of the market due to Fed stimulus was so extended above long-term trends in March 2020 that the depth of that correction was not surprising.
The current deviation dwarfs all others, suggesting that the subsequent decline’s depth is equally as great.
Of course, the question is whether the next round of Fed interventions will be enough to restore financial stability.
“Don’t stress, none of this will happen,” you say. Maybe not, but are you willing to bet your retirement on it?