The big news last week was that the S&P 500 briefly fell to -20.4% from its record high (a level seen just a few months ago in early January) in intraday trading. The bellwether index closed a bit higher to creep above the -20% level. A bear market can be broadly defined as ‘a fall of 20% or more from a high’ but it tends to be based on closing prices, rather than intraday levels. Whatever way you look at it, it isn’t a positive development for markets. But it is worth noting that stock markets came within a whisker of a 20% fall in 2011, 2015, and most recently in December 2018, before the longest bull market in history finally succumbed to COVID in March 2020.
The point here is that such levels or milestones are somewhat arbitrary yet can be easily used to spook investors. Headlines such as ‘$1.5 trillion wiped off market’ which emerged on Thursday only serve to derail investors from their long-term plans. Sentiment is clearly extremely bearish. The much-followed BofAML monthly investor survey shows the highest allocation to cash in decades, with fund managers reporting their largest underweight position in equities since May 2020. However, whilst 2022 has been unsettling for investors, it does represent just six months over the lifetime of an investor’s journey. Sticking to core investment principles, remaining disciplined, and sticking with the plan continues to be age old, yet pertinent advice.