Is the Market Acting Bearish?

With the market’s recent behavior, are your knees weak? Arms heavy? Maybe you threw up a little; was it your mom’s spaghetti? If you’re not feeling humorous or have no idea who Eminem is (come on, it’s the song needed in times like this), the point is that the market is rough, some saying bearish. 

Is it all in your head? Just noise in the news? Or are there legitimate events impacting the stock market? If you’re tired of hearing the market is doing poorly but don’t know for yourself, let’s dive into it. This article will cover what counts as a bearish indicator, what’s causing it, and what the future might hold. 

What Does Bearish Mean? 

If you’re new and have no clue why a bear is involved in this, I’ll catch you up to speed.

What is a bear market? When asset prices significantly decline, around or more than 20%. This can create panic among investors and the country alike. 

What is bearish? Having a bearish attitude means you’re anticipating the prices to go down. 

Despite every website, financial company, blogger, and Redditor claiming they know when a bear market is coming, there’s never a perfect rule. COVID-19 wasn’t predictable (unless you’re a wizard), which caused a bear market. Keep in mind that indicators are suggestions, not a golden rule, so don’t live your life by any particular indicator.

Common Indicators of a bear market:

• Economic Growth Declines
• High Market Volatility 
• Falling Corporate Earnings 
• High trade levels from institutional investors 
• Negative Market Sentiment 

Events Causing Bearish Attitudes 

There is quite a bit of negative market sentiment circling, not just for investors but across the board. Looking at everything from a zoomed-in angle isn’t helpful, but being aware takes priority. What’s going on to cause discomfort? 

Recent events: 

• Inflation continues: Even though inflation is slowing, the Federal Reserve is not yet done hiking interest rates, which continues to create a bit of a panic.
• Warren Buffet’s Activity: Buffet sold $8 billion in stock in the 2nd quarter, according to Yahoo Finance. 
• Cathie Wood/Other Hedge Funds Also Sell Stock: Cathie Wood, along with several other hedge funds, have recently been dumping stock (NVDA, amongst others), causing eyes to look at the activity. 
• Apple Loses Billions: China plans to expand the ban on iPhones, according to Bloomberg. Following the news, Apple dipped by 3% and lost around $200 billion. The impact caused the Nasdaq to decline because of Apple’s reliance on China for customers and manufacturing. 
• Tempestuous Job Market: The job market is acting more than funky right now, with unemployment rising, layoffs rising, and uncertainty in the market.  
• Workforce Sentiment: Not only is the job market up and down, but employees are the unhappiest they’ve been since 2020. The impact of COVID-19, layoffs, job uncertainty, inflation, being forced to return to the office, and several other factors impact the overall vibe. With continued frustrations, it’s unpredictable to determine how employees will behave.
• Hollywood strike: If workers are unhappy, it makes sense to hear they’re striking. With both actors and writers on strike, the entertainment industry has been negatively hit, already costing California $3 billion.
• Potential Car Industry Devastation: Hollywood isn’t the only industry angering its workers. The 3 major American car companies, GM, Ford, and Stellantis, have a contract renewal next week, but it will most likely turn into 150,000 workers going on strike this coming September 14th. The strike could result in a $10 billion loss for the companies. 

And that doesn’t even include the housing market or the political climate the US is in! After all that, is there any positive sentiment? Is it time to curl into a ball and accept the inevitable of what it feels like to exist in the crushing weight of 2023? Don’t let events throw a wrench in everything. It still isn’t the end of the world. 

Although the vibes aren’t feeling great, it doesn’t mean the world is ending. The beauty of the stock market is all these adverse bearish events can go on, and then a million other factors could counter it. 

But say the worst happens: the economy crashes, and the country enters a recession. There is still an opportunity within a downturn. Just because it’s negative doesn’t mean it’s abnormal to have dips and lows. What you need to know is what to do. 

What’s the worst thing to do? The worst thing to do is panic and do nothing. It’s a different time, but inaction doesn’t lead to a positive outcome. 

What should you do if the market crashes? Feel validated about any anxieties and then you need to change your investment strategy. 

Here is the gist of several recommendations from Charles Schwab on a strategy shift during a bear market:

1. Invest Cautiously: Don’t stop investing, just don’t put all your eggs in at once (who wants a cake with 30 eggs?). Ensure you’re doing your due diligence to evaluate a company’s ability to withstand a recession, but don’t invest everything you’ve got, even if you think it can.
2. Buy small and wide: It’s hard to predict a bear market and harder to predict how long it will last. Instead of purchasing large amounts, start small but with consistency. You need to try to stick through the bearish downturn and set yourself up to see the benefits in the next bull market.
3. Diversify Portfolio: In ANY economic period, you should diversify your portfolio, which can significantly help in a downturn. Having a diverse set of stocks will assist in boosting the value of your portfolio in the next bull market. It’s all about the position. 

The important takeaway is not to panic about the present but to think ahead for the future. What position do you want to be in after a bear market is over?

A financial analysis tool is the best way to set yourself up correctly for a bearish market, especially when using personal research skills. With Equities Lab, you can create or use a strategy, decide the criteria, and directly evaluate securities from the data.

With the ability to create your own screener or utilize an existing one, there’s immense opportunity for success. Decidedly, during a bear market, you want to be more cautious. If you use Equities Lab, here are three screeners that analyze for low volatility that you can select under the “Featured Screeners” in the Explorer tab. 

• Low Volatility with Good Returns: This screens for companies that DON’T have any significant movements in share price. It does this by backtesting for the absolute beta value lower than .8 and evaluating share prices that haven’t changed by 10% over twenty days at any point in the past six months. 
• Utilities and Consumer Defense FTW: This spits out companies with market-like performance at half the volatility. It does this by backtesting in Utilities and Consumer Defense by excluding 70% of the lowest market cap and then excluding 70% of companies with the highest volatility within that. 
• Supposedly Boring Dividend Screener: This sweeps for companies that pay high dividends and can continue those payments long-term. It does this by backtesting for companies that have paid dividends every year since they started paying dividends, the dividend/shares must be increasing yearly, the dividend yield has to be in the top 80% within a particular industry, must be a large-cap company greater than $2 billion, the stock price has to make 10% less than 50% of the market, and the value score must be over 3

What now? The bear market isn’t here yet, but indicators are hot. You can be ready to adjust your approach by staying informed, so don’t miss out on strategies that could make the market your market.