Today, Bud Kasper and I compare COVID-19 and previous bear markets, and what we think is coming down the road.
Comparing COVID-19 to Previous Bear Markets
Market Performance

Figure 1 | Source: Chaikin Analytics
DEAN: We’re starting with a very ugly chart in Figure 1. What we’re looking at here is major indices on a year to date basis. You can see that most of the indexes are off of their lows for the year by a pretty substantial margin. But it’s clear unless somebody had all of their equity positions just in the NASDAQ, they’re pretty heavily negative on the year. Now, we did see a nice bounce of April 2020, coming well off of the lows that we experienced in the latter part of March.
Where are we headed?
So, the question is, you know, where does this take us? Where are we from here? Because we’ve seen this bounce back, does this mean we’re going to have a V-shaped recovery, and things are going to be back to normal soon? What do you think, Bud?
BUD: Well, I’d, I’d love to see that Dean. I mean, that would be the preferable conclusion to the issues we’re dealing with right now. My emotional thought about it is, I just can’t believe that it’s over. I think there’s a reasonably decent probability that we’re going to have a retest. That doesn’t mean we have to go as low as we did, but the attempt has to be there.
Collateral Damage Caused by COVID-19
I think there’s a lot of unknowns that I’ll refer to as “collateral damage” caused by COVID-19 that we haven’t seen in the numbers so far. However, on the same token, I think one thing that we have in America that so many other countries don’t is an incredible resilience.
If it is the case, we have seen the market come back and retrace almost 50% of its losses. That’s comforting from a strategic position of being okay with how you’re invested because the damage wasn’t quite as bad as just two weeks ago. So with all this in, what happens from here? I generally tell clients plus or minus 10%, from the average of the lows over, let’s say, three weeks. And then finally, we get enough confidence back into the economic numbers to suggest that the market should be at a higher multiple than what we have it right now.
DEAN: Right, I think you and I would both agree that it’s going to be very difficult for any company to give any guidance on their earnings until we have something positive with treatment. More rapid testing programs so that we can get people to get confidence to get back out into the public and start doing things.
COVID-19’s Impact on GDP
I know that a lot of people understand this, but consumer spending is 70% of our GDP. So, the most critical thing we can do is to get consumers back out to do the things they were doing before COVID-19. We don’t know how long that’s going to take. We don’t know what the damage is to small business communities.
I think that what the federal government has done, and what the Federal Reserve has done at this point, have been huge steps. They reacted with lightning speed, compared to what they did back in 2008. I think that’s going to do a lot to help shape the recovery as we continue to tackle the reality of COVID-19.
Comparing COVID-19 with the Great Recession Bear Market
BUD: Yes. That’s an interesting point because 2008 was the playbook we used here. But boy, it had to be incredibly enhanced. That’s what we’ve experienced. You raised a point that is so true. I wrote about this in a recent article that I did titled Who Do You LUV? In it, I wrote about the 70% factor, which is, of course, 70% of GDP based upon domestic consumption. But we have 26 million people out of work and not spending money because they don’t have paychecks or they’re on unemployment. Therefore, that has to have an impact on what’s going to be happening economically.
DEAN: Again, we don’t know what the impact is going to be.
Comparing COVID-19 to Previous Bear Markets, Lost Decade, WWI, and More

Figure 2 | Source: Morningstar
DEAN: Let’s switch gears a little bit. I want to go over a couple more charts. Figure 2 goes back and looks at past bear markets. We don’t need to go back into the 1800s, but we can look at World War I and influenza on the left side, and it was huge, right? You can see the drawdown, a little bit of recovery, and then boom, it hits again. Then you see recovery some 13 years later. So, and then there was 1929, the Great 1929 crash and the Great Depression. After that, the post-war bear market, all kinds of things that were going on through to World War II.
The Lost Decade
However, let’s go back to something more recent, looking into the Lost Decade between 2000-2010. Starting with the Dot Com Bubble, as you know, that was between 2000 and 2002. Things didn’t recover until the beginning of 2003. Then all of a sudden, in 2008, we have the Great Recession. So, we did indeed have a Lost Decade.
Keeping Perspective
“In the words of Arthur Fonzarelli, ‘Be cool.’ Understand the situation, realize that we prepare for things like this, and we will persevere.”
– Bud Kasper

Figure 3 | Source: Morningstar
To put things in perspective today, the little red line in Figure 3. I know, it’s difficult to see on this chart, but that right now is the bear market that we’re in with COVID-19. Comparing COVID-19 to other bear markets, Bud, I pray that we don’t see something like the Lost Decade. In Figure 3, you can see a classic V-recovery in the COVID-19 bear market. Bud, what are your thoughts on this chart?
BUD: So, when you look at the first part of the Lost Decade, cumulative loss on the S&P 500 during that timeframe was 47%. And then as it started to regain its losses, and then we stepped into 2008. And at that time, we had a 54% decline at that point before we came back.
The last three years were unbelievably positive in all aspects of economic numbers. Unemployment was the lowest it’s been in, what 60 years? Profits were up considerably, and then out of nowhere, COVID-19 comes into our lives and knocks out a lot of the returns. Just as importantly, it took people out of work. Right?
DEAN: Right! It’s just unbelievable.
Comparing COVID-19 to Previous Bear Market Timelines

Figure 4 | Source: Morningstar
DEAN: Let’s take a look at one more chart here. Figure 4 shows historical timelines for bear markets and how long each lasted. If you look on the far right, the longest bear market from peak to trough back to recovery was World War I and influenza. The next one, the orange line, that’s the Lost Decade. Now look all the way to the left for the red line.

Figure 5 | Source: Morningstar
In Figure 5, you can see a zoomed-in view of COVID-19. We haven’t begun if this bear market is going to be something different than the 1987 market crash, Bud, which we have no way to predict.
Be Cool
Look, we need to be ready for the fact that there is likely more volatility ahead. We’re prepared to make tactical adjustments to the portfolios as necessary. However, the most important thing we want to encourage everybody in our client base to do is to be speaking with your advisors. We’ve been talking to many of you regularly through virtual means, and you understand how things are structured, and how it impacts your portfolio. So Bud, closing thoughts here?
BUD: Yeah, in the words of Arthur Fonzarelli, “Be cool.” Understand the situation, realize that we prepare for things like this, and we will persevere.
DEAN: Yo, I agree.
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