Over the last few days, I have had several clients reach out asking if the market has bottomed out and if we’re in the recovery. Maybe. Or Maybe not. To use the “Wall Street lingo”, it’s possible that we’re experiencing the “Dead Cat Bounce”.
Investopedia.com states that “a dead cat bounce is a temporary recovery from a prolonged decline or a bear market that is followed by the continuation of the downtrend.” In other words, it’s possible that we’re experiencing an short-term rise in prices, before an even larger fall.
Over the last 18 months or so, Gary and I have described the rising stock market as similar to what happened in the late 1990’s before the Tech Bubble burst. Obviously every time period is unique in it’s own way, but I thought I’d include a graphic from Ben Carlson on the “Dead Cat Bounces” in that stock market crash.
As you can see, after significant drops, there were five double-digit positive return periods before reaching the bottom, with even more significant drops after these up periods. I’m sure that each time that the market began to have up-days, many investors thought “this is it! We’ve hit the bottom!”, only to have an even bigger fall.
This isn’t to say that this time will be exactly the same. It is possible that we reached the bottom of this bear market and have begun recovering. While the speed of this bear market is unprecedented, the S&P 500 dropping 35% from February 19th to March 23rd, the degree of the drop is still less than the last 2 bear markets:
Oct. 2007 – March 2009: 56.4% decline (“Great Recession”)
March 2000 – Oct. 2002: 49.1% decline (“Tech Bubble”)
So what do we do about it? We continue to stay invested, keeping money in both growth assets like stocks and more stable securities like high-quality bonds. We continue to look at rebalancing opportunities. We continue to focus on long-term investing, not short-term market moves. If we have already seen the stock market bottom, then we are happily on the way to a recover. But, if this is just the 1st Act, then we will be prepared to take advantage of opportunities to buy into the stock market at lower prices.