Market Pulse: It’s a bear market … for most |

Market Pulse: It’s a bear market … for most

David Vomund
Special to the Tribune
David Vomund

Last week the market officially became a bear market when the S&P 500 reached a loss of 23%. The S&P 500 is understating the weakness of most stocks. Eight out of 10 stocks have lost 20% or more. Large-cap growth indexes have lost a third of their value. Value indexes are better. They are still in “correction” territory with losses of about 14%.  

More than anything stocks react to changes in the outlook for earnings and interest rates. The outlook, not the current data. It is at best cloudy and likely deteriorating as we see in reports on housing, consumer sentiment and retail sales. Earnings would suffer in a recession, which may soon be at hand, and due to inflation and Fed policy interest rates will rise. No wonder stocks are under pressure.

As I often say, there are stocks and there are stocks. I favor those, like Merck (MRK), that pay dividends and raise them. ETFs like ProShares S&P 500 Aristocrats (NOBL) own those stocks. While we wait for the market to recover we’ll collect the dividends. Unfortunately, I don’t expect a quick recovery like in 2008 and 2020.  The Fed is not propping up prices this time.  It will take time but recover it will, just as it did after every other bear market.

The course of the stock market will depend on the two factors that matter most – earnings and interest rates. If we have a recession earnings and valuations will be impacted. That would be a negative. But in a recession investors look past it to the better days ahead, which is why the best buying opportunity is as John Templeton said at the “moment of maximum pessimism.”  

In support of that is this from Mark Hulbert at MarketWatch: The S&P 500, if purchased on the first day of a bear market (minus 20%), returned on average 22% for the next 12 months. That day came last week. In 10 of the 12 cases since World War II you were sitting on a profit in a year’s time, in two on a loss. But even in those two cases, you eventually came out ahead — just took longer than a year. 

Wharton’s Jeremy Siegel, always a voice of reason, said the market has priced in a mild recession. Take out the technology stocks, he said, and the market is trading for only 13 times earnings. Investors with a healthy time frame will be amply rewarded.  

David Vomund is an Incline Village-based Independent Investment Advisor. Information is found at or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.

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