Shiller Tracks Past Bear Markets

In a recent article for MarketWatch, Yale professor and Nobel Laureate Robert Shiller shares insights on past bear markets in the U.S. and how the current market environment resembles the periods preceding them. Citing the “conflicting messages” of “high valuations following a period of strong earnings growth and very low volatility,” Shiller shares data he collected by reviewing 13 U.S. bear markets since 1871 (a drop in the market by at least 20%) regarding each of these factors. Valuations: Using his cyclically adjusted price-earnings ratio (CAPE), Shiller points out that the current level of 30 is “high,” which could imply […]

Jason Zweig Says Active Managers Also Underperform in Down Markets

Although the data continues to show that stock pickers have underperformed the market, writes Jason Zweig in a recent Wall Street Journal article, “active managers insist that they will make a comeback.” The article cites data provided this month by Bank of America Merrill Lynch that shows “63% of active fund managers investing in large U.S. stocks outperformed their benchmarks in April, the best since February 2015.” Active managers, writes Zweig, claim that the pricey market has made it difficult to pick winners, but that they will “prove their worth again when the market finally goes down.” However, he argues […]

A Market Correction May Be Good Medicine

Although stock prices have tripled during the eight-year bull market, there have been only four corrections, and some investors think a period of decline might not be so bad. This according to an article in last week’s Wall Street Journal. The view of many analysts and investors, according to the article, is that the “postelection rally that has driven the S&P 500 up roughly 10% has cleaved share prices from the underlying fundamentals that tend to drive gains over time, such as interest rates and corporate earnings.” Data going back to the late 1980s reflects that a market correction tends […]

Morningstar on Preparing for Bear Markets

There are no hard-and-fast rules for determining whether value or growth stocks will suffer the most during a bear market, writes Morningstar senior analyst and CFA Kevin McDevitt. “No two bear markets are the same,” writes McDevitt, “and the catalysts behind them tend to change. There is usually one sector that gets hit particularly hard, but it is difficult to anticipate which one it will be.” He offers the following historical data: McDevitt explains that the 1998 bear market was sparked by Russia’s debt default and devaluation of the ruble (which occurred while the U.S. dot com bubble was still […]

Zweig: Buy in a Market Bust like John Maynard Keynes

Anyone who has studied economics will be more than familiar with the name John Maynard Keynes. In last week’s Wall Street Journal, Jason Zweig reports that new research is offering information about how the investment success of this great economist “should teach all investors the importance of preparation, courage and patience.” Before his death in 1946, Keynes wrote several books that, according to Zweig, “revolutionized economic policy and helped devise the modern global monetary system.” The research explains how he also “mustered the courage to invest heavily in U.S. stocks” during the Great Depression while traveling to the U.S. to […]