MATCO MARKET INSIGHTS - BULL vs. BEAR MARKETS: WHAT'S THE DIFFERENCE?

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There are many theories about how the terms bull market and bear market came to be, but the most popular explanation is how each animal attacks.  A bull attacks by lowering its head and using its horns to lift “up” its opponents, while a bear attacks by raising its front legs and using its paws to swipe “down” at its opponents.  Thus, when the market is trending “up,” it’s termed a bull market and when the market is trending “down,” it’s termed a bear market; a bear market is confirmed when a market declines by 20% or more.

Between 1932 and 2021, the S&P 500 Index experienced sixteen bull markets and sixteen bear markets (table below).  The longest bull market in history, March 2009 to February 2020, lasted 10.9 years and returned +401%.  This was followed by the shortest bear market in history, February 2020 to March 2020, which lasted 23 trading days and returned -34%.  Although bull markets and bear markets come in all shapes and sizes, the average bull market (ex-current bull market) lasts 4.3 years and returns +158%, while the average bear market lasts 1.7 years and returns -38%.   

The current bull market, which has lasted 1.3 years and has returned +92%, should continue to trend up until earnings growth peaks, fiscal and monetary stimulus is contractionary, and inflation becomes a problem.  For the remainder of 2021 and throughout 2022, earnings growth is expected to be positive, fiscal and monetary policy is expected to be expansionary, and inflation is expected to overshoot but stabilize.  We believe that the global economy will continue to recover, life will return to normal, and the current bull market will extend into 2022.    Historically, bull markets have been associated with the first three stages (early cycle, mid-cycle, and late-cycle) of an economic cycle (chart below), while bear markets have been associated with the last stage (recession) of an economic cycle.  With that said, we are currently early cycle and will likely enter mid-cycle within the next twenty-four months; dependent on the speed at which the global economy recovers.  In mid-cycle, growth typically outperforms other investment styles, mid-caps typically outperform other market caps, and information technology and communication services typically outperform other sectors.

 We anticipate periods of volatility as we navigate the current economic cycle; however, we expect positive returns over the long-term or until late cycle and prior to a recession.  The duration of the current bull market or economic cycle is uncertain, but we do have visibility out to 2022 and would recommend that investors buy the dips.  Elevated market valuations could be a reason for the next dip.

We analyze the markets closely and make investment decisions that first, protect our client’s capital and second, grow our client’s capital, throughout the different stages of an economic cycle. 

Is your portfolio positioned for this stage of the economic cycle?  If you are not sure, please feel free to contact me.

 

Click here to email Baron   Buy our MATCO Mutual Funds today 

Baron Lee, CFA
Vice President & Portfolio Manager
Local: +1-403-718-2129

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MATCO FINANCIAL INC.

Founded in 2006 to manage and service seven family offices, today Matco offers the benefits of our extensive investment management experience to individual investors, foundations, endowments, condominium corporations, trusts, corporations and not-for-profit organizations.

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 Matco Financial is an independent, privately held discretionary investment counsellor and asset management firm that serves the needs of individual investors, institutions, advisors, trusts, corporations and not-for-profit organizations. Matco provides investment advisory services to investors on a discretionary basis through mutual funds and separately managed accounts. This communication is intended for information purposes only and does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Matco Financial Inc. makes no representations as to the accuracy or any other aspect of information contained in other websites. All statements that look forward in time or include anything other than historical information are subject to risks and uncertainties and are not guarantees of future performance. Investors should not rely on forward-looking statements. Actual results, actions or events, could differ materially from those set forth in the forward-looking statements.

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