Bear With Me – Investing In A Bear Market


Investing in a Bear Market in 2022

The official definition of a Bear market is a decline of 20% or more in an index or market. So far this year both the Nasdaq and the S&P 500 have both entered a bear market on this basis.  

The FT100 has avoided a bear market so far this year, having fallen only 11.69% from its February high to the March low and the Dow Jones Industrial Average has also scraped through, falling by only 19.06% from its Jan 2022 high to the June low.  

What are our insights for investing in a bear market?

Why are we here? 

However you define the position of investment markets in the US and UK, it is safe to say it has been an exceedingly difficult year for investors. The end of government stimulus that subsidised consumer spending for 2 years during Covid, Ukraine War and a natural weakness in the markets after over 12 years of economic and market prosperity, all proved too much, and reality started to sink in by the summer.  

The world realised that inflation was a reality and not “transient” as was hoped by both the UK treasury and the US Federal reserve. In his Q & A at the Cato institute on the 8th of September 2022, Fed chair Jerome Powell said that “if it were not for covid, inflation would not have happened”, and this is a crucial factor to remember. On the 13th September, the reality of Inflation was further confirmed when US CPI data revealed that inflation was not yet falling, worrying the markets further with the prospect of it taking longer to get rising inflation under control and interest rates in the US expected to rise above 4%.  

Economies and the stock market are all about supply and demand and during the pandemic we saw an unprecedented rise in demand coupled with a restriction in supply, the natural outcome of this being inflation. Once inflation reared its head, rising interest rates had to follow.  

So here you have the perfect storm and stock markets had to fall as companies started to come out with poor earnings for this year and/or poor expectations going forward.  

What is particularly interesting here is how this affects your investments going forward. I have in previous commentary suggested that this is a mid-cycle recession, and I do not expect it to be long or too deep because fundamentally world economies remain strong.   

What now? 

Unemployment is low in the US and UK (the lowest it has been since 1974 here in the UK), most of the world has growing plans to develop and renew infrastructure, technology continues to develop with exciting developments also in healthcare so there is much to be bullish about in the long term, the problem right now is the cocktail of interruptions to future progress.  

Resolution is what we are now looking for – an end to the Ukraine War, peak inflation, a pivot in interest rate policy from the US Federal Reserve and the UK treasury – because all these things will be the catalyst to the return of the bull market and economic prosperity.  

We cannot know when there will be an end to the war in Ukraine, but we do have experience of economic cycles and the end to inflationary environments. Typically, it can take around 9 months to reach peak inflation after interest rates start to rise and a further 9 months for interest rates to stop rising and potentially start to fall again. If all other economic conditions remain favourable, a small mid cycle recession can take about 18 months to clear.  

We can see that inflation started to rise in November of 2021 and we eagerly await US and UK inflation data for August period to see if it has indeed started to fall since July. If it has, we could see some economic improvement in April/May 2022. The stock market typically leads us into a recession and subsequently out of it again so we may start to see improvement in the markets in the last quarter of this year.  

What next? 

If you assume we will follow a typical mid cycle recession pattern; we could see continued volatility in stock markets for the next 12 to 18 months.   

Without sounding like we have a crystal ball; it would be reasonable to see some short-term opportunities for growth in this period. We could see a rise in the markets in the last quarter of this year, fuelled by any of the events mentioned above. I would expect, given how long economic data takes to filter through the system, that the 1st half of 2023 will see continued volatility and potentially another down period especially if we officially enter a recession in the UK and US. Once we see the inflation data improve in the second half of 2023, we could be setting up for a move back to the bull market.   

If you want an “outrageous” prediction, Kerry Balenthiran suggests that, based on his extensive research in to a 17.6-year Stock Market cycle, that we will see a full cycle Bull market between 2024 and 2035. If that comes true, substantial profit could be made in that period.  

So, we believe that cash remains king for the time being, with a plan to allocate that as opportunities permit in the last part of this year. Caution will be the watchword in the early part of 2023, and we will look to position portfolios well on any pullbacks that provide great opportunities to be in the right place for the new bull market in 2024.  


The covid period from 2020 to 2022 has been an exceedingly challenging time for investment markets and the fallout we are now seeing makes it worse. The net result for most investors will have been little or no growth in investments in this period and potentially some losses.   

With prudent allocation and risk management I would expect to see the 5 year returns from 2020 onwards to show good positive returns ( In 2008 we saw a huge fall in stock markets with the financial crisis, in some cases falling by 50%, but by mid 2013 investors were moving back in to profit from their 2008 levels and this was a major market cycle, as opposed to the potentially milder mid cycle activity we are seeing now.)  

For now, we must “bear with it,” better times are coming.  

We are here to assist, should you wish to book a free 30 minute consultation with Ian Clarke contact us today. 

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