Since we wrote Flirting with a Bear last month, markets have gone from flirting with a bear market into an actual bear market in the S&P 500. Here are a couple of quick updates.

 

In Flirting with a Bear, I highlighted that in spite all the contrarian buy singles, the thing that made me the most nervous was the complete lack of panic we’d seen in the market and how orderly the selling had been. It felt like that changed following the US CPI print on June 10^th and the 75bps Fed Rate Hike on June 15^th.

 

Signs of Panic

 

Over the last two weeks we saw more than 90% of S&P500 stocks decline in five of seven trading sessions. This has never happened since 1928.

 

More public companies are trading below the value of the cash and short term investments on their balance sheet than at any time in the last thirty years.

 

The BofA Bull & Bear Indicator got down to 0.0.

 

 

The BofA Bull Bear indicator has been at 0.0 on the following dates: August 2002, July 2008, September 2011, September 2015, January 2016 and March of 2020.  Here are the 0.0 readings (indicated with circles) on an S&P500 price chart. 

 

S&P 500 

Source: Bloomberg

 

We continue to stress that every market is different but historically you would have done pretty well buying the S&P500 the day it drops into bear market territory.

 

 

For those watching valuation closely, I’d flag that we’ve also seen an extremely rapid and substantial contraction in the S&P 500 P/E multiple.

 

 

What’s an investor to do?

 

Every market is different and unsettling events can lead to volatile markets that make it difficult to stay invested. The challenge for investors is remain focused on their long-term objectives. If investors can remain focused on their long-term objectives, they can reduce the need for market timing and ‘hero calls’ by saving and investing using a regular cadence, like putting a portion of your earnings aside every week or every month. By saving and investing at a consistent rhythm across market cycles, an investor will end up buying more securities when the market is inexpensive and fewer securities when the market is expensive.

 

At the risk of sounding like a broken record, I continue to recommend investors to stay focused on the long-term and to pursue a barbell strategy where high-quality companies exposed to secular themes provide exposure to equity markets, while cash and alternative investments are used to reduce volatility and provide ballast for portfolios.

 

Let me know if you’d like to have a more involved discussion.

 

Delli 416-594-8990

delli@cibc.com

 

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