May 13, 2022
Good morning,
When market declines get into the double digits, fear becomes the dominant emotion and labeling becomes its supporting wingman. Market parlance labels Bear markets as market declines in excess of 20% and Corrections as anything less. This type of labeling system is not very helpful to market analysis or much else, other than elevating emotionality and driving fear toward hysteria.
History suggests there are two kinds of double-digit market declines – one is accompanied by a recession and the other is not. Data, to date, suggests that this market is the latter kind. It will be labeled a bear market, but shouldn’t be as long or deep as the former kind. The true problem for investors is that both types of declines look and feel the same in the beginning, and right up until they don’t. Fear measures spike in both cases, and extreme fear can cause investors to abandon investment plans at the worst of times.
March inflation data coming out is looking a little toppy and hinting peak-ish. Bond yields have dropped well off their highs (the 10yr is 2.90% now from 3.20% only days ago). I’m not calling a bottom, just reminding us all to be wary of the emotions market movements will instill in all of us, and that they are not to be trusted.
Be well,
Mike