At the turn of the year, the US stock market hit rough roads. Thankfully, the market did not officially turn bearish.
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Investors dread bear markets, which indicate an economic slowdown or a recession and a fall in the prices of securities. And unlike a market correction, a bear market lasts for more than two months, and the bottom of the market is indeterminate. Profit losses are difficult to recover, more so when the proper strategies had not been implemented prior to the downturn.
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A bear market is augured by a decline of 20 percent from a market high in various broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over two months. The slide early this year was tabbed at around 14 percent.
Still, smart investors know how to prepare for the onset of a bear market by watching out for several signs including:
i) Volatility in the Federal Reserve
ii) General decline in earnings among companies
iii) A low confidence score from small-business optimism indexes
iv) Decreasing consumer confidence
v) Unhealthy GDP rates
vi) Indications from analysis of fund flows
vii) Economic and political uncertainties
Economic coping strategies for a looming bear market include one of the most common: short selling. This is offering borrowed shares for sale and buying them back at lower prices. Or people could just wait out bear markets before they buy stocks again.
For more advice on financial planning, especially for a post-retirement life, visit this Springer Financial Advisors blog.
