Market Commentary  |  BON 2003

Working Money: Bear Market Bottoms by David Penn

Working Money: Bear Market Bottoms by David Penn Can history help us recognize the end of the bear market before it arrives? The rally in equities during October 2002 appeared like a land bird spotted by a sailor lost at sea. In some respects, given the depth of the decline in indexes such as the Standard & Poor’s 500 index since March 2002 (and before that, the decline since March 2000), it is almost surprising that more commotion hasn’t been made out of the S&P 500’s 130-point, 17% rally, which began with the bottom of October 10, 2002. With the current bear market beginning to rival historical bear markets in both length and severity, it is hard to blame those who buy stocks for feeling that enough is enough … it’s time for stocks to rally. Is “PO’d” an official stage — somewhere between anger and dejection — in the course of the typical bear market? There was a growing sense, as the markets began to move upward again in the second half of October, that investors had taken enough punishment — as if there were some not-so-benevolent god of the markets hurling down thunderbolts in the form of corporate crooks, war anxieties, terrorism, and depressed corporate earnings. Experienced traders, of course, would recognize this thinking as hope, pure and simple. But legions of still relatively green investors seem to believe that as long as they take their “punishment,” then the market will reward them with a return to the sort of historic overperformance that got investors so giddy about investing in the first place. This, unfortunately, sets up a sort of “Are we there yet?” watched-pot syndrome in the minds of average investors — a condition that, ironically, makes the market all the more prone to move lower before it moves higher.

by David Penn