May 03, 2019

May 03, 2019 | Investments Insightz


Bull vs Bear

The sharp decline in markets in the December quarter of 2018 prompted some commentators to worry that equities were headed for a bear market, technically defined as a fall of 20% from a prior peak. In isolation, periods such as these can be alarming, but history can provide some useful insights and indeed some comfort during periods of market downturns.


The sharp decline in markets in the December quarter of 2018 prompted some commentators to worry that equities were headed for a bear market, technically defined as a fall of 20% from a prior peak. In isolation, periods such as these can be alarming, but history can provide some useful insights and indeed some comfort during periods of market downturns.

The first lesson from history is that corrections (falls of more than 10%) actually happen quite frequently and are often only a pause before the market resumes its upward trend. Perhaps of more comfort is that even when a bear market does occur, there has been an ensuing market rise that elevates the market to a new high.

Take the ASX All Ordinaries Price Index, for example. Since 1970, there have been 10 technical bear markets*, as noted by the light blue lines on the following chart.

Source: Bloomberg.  Based on All Ordinaries Price Index, monthly observations (from 31/12/1969 to 31/12/1979) and daily observations (from 31/12/1979 to 26/04/2019). A bull market is taken to be a +20% move; a bear market -20%.

And while the average bear market pull-back of -36% can indeed be painful, investors should also be mindful of the +130% return from the average bull market.

The average bear market has lasted for 13 months, a relatively short period when compared to the average bull market’s 46 months. It is also interesting to note that most early phases of a new bull market incorporate a period of sharp recovery. In those dark days of market pull-backs it is very hard to time when the market might turn, but history tells us that it will.

*This chart has looked at the ASX All Ordinaries Price Index. If the All Ordinaries Accumulation Index had been used (including dividends), then certain bear markets would have been technically classified as deep corrections (eg March 1980, when the Price Index fell 20.3%)

Important information: The content of this publication are the opinions of the writer and is intended as general information only which does not take into account the personal investment objectives, financial situation or needs of any person. It is dated May 2019, is given in good faith and is derived from sources believed to be accurate as at this date, which may be subject to change. It should not be considered to be a comprehensive statement on any matter and should not be relied on as such. Zurich Investment Management Limited ABN 56 063 278 400 AFSL 232511 of 5 Blue Street North Sydney NSW 2060, nor any of its related entities, employees or directors (Zurich) give any warranty of reliability or accuracy nor accept any responsibility arising in any way including by reason of negligence for errors and omissions. Zurich recommends investors seek advice from appropriately qualified financial advisers. Zurich and its related entities receive remuneration such as fees, charges and premiums for the financial products which they issue. Details of these payments can be found in the relevant fund Product Disclosure Statement. No part of this document may be reproduced without prior written permission from Zurich.
Past performance is not reliable indicator of future performance. GINN FVHHKJ.00012.ME.036. CSTT-014536-2019

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Lessons from Market History

The sharp decline in markets in the December quarter of 2018 prompted some commentators to worry that equities were headed for a bear market, technically defined as a fall of 20% from a prior peak. In isolation, periods such as these can be alarming, but history can provide some useful insights and indeed some comfort during periods of market downturns.

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