Mar 4, 2020

We Have Seen this Movie Before

During the week of February 24th, there was over a week of broad, persistent selling in the global markets. Although we have not seen the coronavirus before and are not sure when it will be contained, we have seen such broad selling of the global markets from global shocks before.

A bear market is defined as market declines of at least 20%. During the steep declines during the week of February 24th, the return on the MSCI World Index did not fall into bear market territory but qualified as a market correction (down 10% or more). However, if the down draft continues into a bear market, it would be good to put bear markets into perspective. Since 1970 there have been 8 bear markets in the global marketplace. Below is a graph of the MSCI World Price Index from January 1970 through February 27, 2020. As can be seen on the graph, the last global bear market selloff was in May 2011 through September 2011(although during this episode the U.S. market did not go down 20%). This selling in the global markets was caused by anxiety that both Europe and the U.S were failing to fix their economic problems and the credit crisis was mounting in Europe.

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During steep declines like the one which occurred during the week of February 24th, the investor needs to keep a level head. Since 1926, the S&P has returned 10.2%. Since the inception of the MSCI EAFE Index in January 1980, the MSCI EAFE Index has returned 9.3% as can be seen by the upward direction in the graph. This current market decline comes after the S&P Index returned 31% last year and MSCI EAFE returned 22.7% in 2019. It is very hard to time market corrections. It is even harder to time when to get back into a market after a correction or a bear market.

The opinions expressed herein are those of DCM Advisors, LLC (“DCM”) and are subject to change without notice. This material is for informational purposes only and is not financial advice or an offer to sell any product. It should not be assumed that the investment recommendations or decisions we make in the future will be profitable. All investment strategies have the potential for profit or loss. Information was obtained from third party sources which we believe to be reliable but are not guaranteed as to their accuracy or completeness. DCM is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about DCM including its advisory services and fee schedule can be found in Form ADV Part 2, which is available upon request.


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