Bear Markets: Different Ingredients, Same Market Behaviors

No matter what is going on in markets there is always a bear case and there is always a bull case. This is a crucial point. Everyone knows the cliche of markets climbing a wall of worry which put another way is the market overcoming the bear case to higher prices.

The next bear market might be different in terms of what causes it–the consequences of Fed excess perhaps–but the market action will very likely look like every other bear market. It will probably start slowly over several months, catch people off guard because of the extent to which it starts slowly, it will finish with some sort of fast spike down and it will scare away investors who were emotionally unprepared.

Bear markets and other emotionally challenging declines are a normal part of the cycle. In terms of different ingredients resulting in a repeat of past market declines where this was true for the worst financial crisis in 80 years as President Obama referred to it, it will be true in future bear markets too.

The message of repeated behavior caused by different ingredients can help some if not all clients navigate through the next scary market event.

This article was written by AdvisorShares ETF Strategist Roger Nusbaum.