I hear definitions of Corrections being “down 10%” and Bear Markets defined as being “down 20%.” Who makes up these rules? Down 10% of what – 20% from where?—and why do they warrant special classification? This kind of speculative news making causes confusion. Confusion causes dependence. And that’s not the Lose Your Broker way.
Let me try to clear the air.
“Markets” are described by the means in which Bulls and Bears strike their prey. Bulls lift up with powerful horns to kill and survive, and Bears swat down with massive claws. Bull markets move upward, and Bear markets move down.
And because the stock market is a leading indicator of economic condition, Bull markets are times when the stock market leads the economy upward, and Bear Markets are times when the stock market leads the economy down.
I updated the chart from yesterday’s blog to include today’s data. Take a look and then I’ll finish off the topic.
First, it’s hard to believe that anyone questions the fact we’re in a Bear market when the Dow is sitting more than 3,000 points off it’s all-time high which was set back in October 2007. You know what I’m saying?
Second, the stock market has traded below GDP since the great collapse of 2008. The stock market’s descent began long before the money market crashed in the fall of 2008 (see my book for details). It lead the economy lower, and it has remained there for a long time. That’s a Bear market.
Corrections go both ways (up and down) and “correct” irrational trading behavior. In fact, that stock market move above GDP – from early January 2011 until August 8, 2011 – was really just speculation that caused a short term move outside the long term stock market trend. And then the stock market had to correct.
There’s no reason to be confused. We’ve been in a Bear market for far too long, and an inflated stock market corrected. It’s easy to see.