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Is this a rolling crash?

Is this a rolling crash?

| May 26, 2022
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“Life is like riding a bicycle. To keep your balance, you must keep moving.” — Albert Einstein

The S&P 500 Index was down more than 20% on an intraday basis on Friday, May 20th.  However, a huge rally late in the day prevented it from moving into an “official” bear market. With the NASDAQ down 30%, the DOW down 17%, and the S&P 500 down 18.7% (as of Friday’s close) a bear market is still quite possible. Nevertheless, we believe we are in a “rolling crash” that has been going on for several months. A “rolling crash” spreads across the market over time, like a wave and it sends specific industries (sectors) crashing, before spilling over into the next (as with the Nasdaq, "mostly tech", which is currently down 32% as of 05/25/22). It kind of acts like a snowball, getting bigger and picking up speed as it rolls downhill.

Here are three things to know should “ALL” stocks, and “ALL” sectors go into an “official” bear market.

  1. One popular question has been what happens after stocks go into a bear market? As rough as these markets are, the good news is the future returns improve greatly once stocks are down 20%
  2. Many analysts have explained that we could expect a median gain of nearly 24% a year after a bear market ends
  3. This in turn may help some beaten-down investment bulls confidently stay the course

This is why we will continue to maintain a ”goodly” amount of cash in the accounts and have avoided any “buying” until we feel confident a sustainable bottom has been formed.

At this time, we (and many economists) are not completely convinced a recession is on the horizon. Of course, this outlook could change depending on what strategy the Fed utilizes over the next few months.

All in all, historical research proves that bear markets not coupled with a recession or those that do not fall greater than the 22% level, tend to recover much more quickly. For now, the “best-case scenario” is if we can avoid a recession with ALL sectors falling no more than 22%.

Lastly, there have been a lot of bear markets over the years, but one truth remains stocks have eventually come back to make new highs.

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