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Bear Market Portfolio Review

It’s time for a bear market portfolio review. If you’re a BayRock client, you should have received an email from me today suggesting we do a Bear Market Portfolio Review. We’ve experienced a Bull Market for a very long time. We may have even experienced a couple of very short Bear Markets along the way over the last few years.

Real Bear Market Indicators

Nobody knows when a real bear market starts or stops. At least that’s what the folks in the media will tell you. If you happen to be a professional investment advisor, you might be able to make a list of things to watch in order to be ready for the next Bear Market.

Bear Market Strategies

Investing in a bear market is different than investing in a bull market and the tools you need to manage risk in your investment portfolio are more complex than what we use in basic portfolio management.

My recommendation is to start by meeting with your Financial Advisor and have a conversation about any changes you’ll need to make in your accounts.

Below is a list of investment strategies that are designed to help you maximize returns while minimizing risk.

Yes, its much easier said than done. However, in order to employ some of these investment strategies, you’ll need to work with your investment advisor to upgrade your accounts to have access to tools like options and margin (for short selling stocks):

  • Diversification

  • Dollar-Cost Averaging

  • Asset Allocation

  • Portfolio Rebalancing

  • Options

    • Calls

      • Long Calls

      • Call Spreads

      • Covered Calls – never naked calls

    • Puts

      • Long Puts

      • Put Spreads

      • Naked Puts

       

  • Short Selling

    • Individual Stocks

    • ETFs

Bear Market Checklist

What Issues Should You Consider During A Recession Or Market Correction?

This bear market checklist covers many of the issues to consider during a recession or market correction.

It addresses some strategies particularly useful when the valuations of the markets are low (such as Roth Conversions and gifting strategies) as well strategies to mitigate the negative impact (cash flow becoming tight).

This can help to pivot a conversation away from one of fear of the future to one where you consider strategies to take advantage of low valuations.

Download the Bear Market Checklist – Click Here

Morgan Stanley says S&P 500 Ready for Bear Market

Morgan Stanley is known for their research department. Back in the day, when I worked in the Wealth Managment department at Morgan Stanley, I thought Mike Wilson was the smartest guy around. Until he told recommended reducing risk in the OIL sector – while oil was trading at $26 a barrel. Today’s news about Morgan Stanley included an interesting article from Ksenia Galouchko wherein she writes:

The S&P 500 is about to drop sharply, Morgan Stanley’s Michael J. Wilson warned, as investors struggle to find havens amid fears of a recession and aggressive tightening by the Federal Reserve.

“With defensive stocks now expensive and offering little absolute upside, the S&P 500 appears ready to join the ongoing bear market,” said Morgan Stanley strategists in a note on Monday. “The market has been so picked over at this point, it’s not clear where the next rotation lies. In our experience, when that happens, it usually means the overall index is about to fall sharply with almost all stocks falling in unison.”

The S&P 500 Index has slumped for three weeks in a row, sinking to the lowest level since mid-March on Friday as investors fled risk assets amid fears of rapid monetary tightening and its impact on economic growth. Fed Chair Jerome Powell’s endorsement of aggressive actions to curb inflation sent traders racing to price in half-percentage-point interest-rate increases at the bank’s next four meetings.

S&P 500 Index's valuation level may be at risk as bond yields surge

 

Morgan Stanley strategists said a quickly tightening Fed is looking “right into the teeth of a slowdown” and that while defensive positioning has worked well since November, they don’t see more upside for these stocks as their valuations have swelled.

At the same time, the strategists said that large-cap pharma and biotech shares’ defensive characteristics make them consistent outperformers in an environment of slowing earnings growth, decelerating PMIs and tighter monetary policy.

“As the U.S. economy moves to a late cycle phase and GDP/earnings growth rates decelerate for the overall economy and market, we think Pharma/Biotech’s defensive properties will outweigh policy concern and drive relative performance higher,” they wrote.

— With assistance by Michael Msika

What is a Bear Market

Bear Market Strategy-1

A bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.

Bear markets are often associated with declines in an overall market or index like the S&P 500, but individual securities or commodities can also be considered to be in a bear market if they experience a decline of 20% or more over a sustained period of time—typically two months or more. Bear markets also may accompany general economic downturns such as a recession. Bear markets may be contrasted with upward-trending bull markets.

Bear Market Factoids

By Investopedia

  • Bear markets occur when prices in a market decline by more than 20%, often accompanied by negative investor sentiment and declining economic prospects.

  • Bear markets can be cyclical or longer-term. The former lasts for several weeks or a couple of months and the latter can last for several years or even decades.

  • Short selling, put options, and inverse ETFs are some of the ways in which investors can make money during a bear market as prices fall.

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IMPORTANT DISCLOSURE:

Investment Advice and Financial Planning are offered through BayRock Financial, L.L.C., a Registered Investment Advisor. BayRock does not provide tax or legal advice. The information presented here is not specific to any individual’s personal financial circumstances. To the extent that this material concerns tax matters or legal issues, it is not intended to be used, and cannot be used, by any investor or taxpayer for the purpose of avoiding penalties that may be imposed by law. Each investor should seek independent advice from a tax professional based on his or her individual circumstances. All content from MissionalMoney.com and SaltyAdvisors.com is provided for general information and educational purposes only. This content is based on publicly available information from sources believed to be reliable. Neither Missional Money nor BayRock Financial, L.L.C. can assure the accuracy or completeness of these materials and this information can change at any time and without notice. Use this material only as general guide to further discussion with your Certified Financial Planner™ professional and/or other Financial Advisor(s).

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