Recently, our team at BCM has noticed an increasing sentiment that a bear market is nearing. We thought it would be useful to share some information compiled by Raymond James’s Andrew Adams. He compiled the following information regarding 2015 and early 2016:
If you had put all of your capital into the largest ten companies in the U.S. stock market in 2015, you would have ended up making about 20%, yet had you held only the other 490 companies, you would have actually been down 3%. It was an incredibly narrow market. This culminated in the low in the market on February 11, 2016, when the S&P 500 stocks were down an average of 27% from their 52 week highs and the stocks in the Russell 3000 were down an incredible 37% off of their 52 week high.
Our take: We occasionally find it interesting how fascinated people can be with arbitrary numbers. This is one of those times. Many pundits classify a “true” bear market as one in which an index falls over 20% from its previous all-time high. This situation in the S&P 500® Index proved to only be 15%, and as such it was largely ignored in the classification of a “true” bear market. Of course, had the S&P 500® Index gone down 20% and the average drawdown on individual stocks within those indices had remained the same, pundits would have pointed to the 27% pullback the average stock had in the S&P 500® Index and 37% pullback in the Russell 3000 to illustrate just how badly the market had gotten beaten up. We suspect in the coming years after further market gains people will begin to point back to this timeframe as a “stealth bear market”.