Shy bear, will he run?

A week that ended with the market up caused intercst to post gleefully that the bears (Hussman being the uber-bear) are wrong.

Is the 2022 bear a shy bear? Will he turn tail and run? Will the trend turn up? Never mind “Sell in May and go away” or the “midterm election effect.” Is now the time to buy the dip?

Maybe we should look at past bear markets.…

**I Know Exactly Where This Market Is Heading (Just Kidding)**

**The decline has been unnerving, but readers want to know how nasty this year’s downturn may become. Our columnist turns to history for answers.**
**By Jeff Sommer, The New York Times, May 27, 2022**

**Because the stock market often falls, I wouldn’t invest a cent in it if I needed to spend it soon. Pay the bills first. I’ve suggested several alternatives for stashing your cash.**

**They include U.S. government I bonds, which now yield 9.62 percent, a rate that is reset every six months. Other short-term Treasury bonds and high-quality corporate bonds are reasonable choices, and bank accounts are safe, even if the interest they pay is minuscule....**

**Some statistics on the historical behavior of the stock market are worth considering. Dimensional Fund Advisors, an asset management firm, computed them, using the CRSP U.S. Total Market Index. The data covered stock market returns from July 1926 through April 2022...**

**The sobering news is that the market had 15 separate episodes in which stocks fell at least 20 percent.**

**On average, these were the findings from those bear markets:**

**Total loss from market peak: 34.8 percent.**

**Duration of the decline until the market bottom: 264 trading days.**

**Time required to recoup those losses after the bottom: 567 trading days.**

**Cumulative returns five years after a 20 percent decline: 69.9 percent.**

**Remember, those are average figures. It has sometimes been much worse than that. The most difficult period for investors in the last century was the Great Depression.**

**From Sept. 3, 1929, until the market bottom in June 1932, stocks fell 84 percent, and the market did not fully recover until Jan. 2, 1945....** [end quote]

My grandfather owned an engineering business in the 1920s. Like everyone else, he invested in stocks. Like everyone else, he lost all his stock investments after the 1929 crash. My grandparents were on a cruise to Europe in October 1929. In Paris, they met American expatriates who had lost all their stock investments and couldn’t even afford a ticket home.

My grandfather refused to invest in stocks ever again. But in the late 1950s, my grandmother realized that the great economic boom would lead to a booming stock market. She snuck money from the household budget and secretly invested in stocks. But, many decades later (1990s), when I told her that I was making good money in the stock market, she warned, “Ahhh…but is it all on paper?”

Never forget the fickleness of Mr. Market.

We are now in a bursting bubble situation. The Fed has held real yields below zero for years. Now they have stated they will “normalize” the fed funds rate. If they do, the stock market will also “normalize” from its current P/E ratio of 32 to the historic median of 16.

Will the bear be shy? Will he turn tail?
I wouldn’t lay money on it.