Bear Market Playbook

March 16, 2020

Market Blog

Having a playbook to follow can be very helpful during bear markets. It helped us here in the LPL Research department in 2008–09, and we think it can be helpful for the current situation. We all want to know the answers to the toughest questions, such as, how much further might stocks fall?  Are we in a recession in the United States?  Also, how long will the crisis last?  These are extremely difficult questions to answer.

Step #1: Follow your plan

Our playbook for this bear market, which has some similarities to the version we used in 2008–09, starts with suitable investors having and following your long-term investment plan. Of course, it’s times like these when following a long-term plan is the toughest.

Step #2: Identify the cause

This was difficult in 2008, especially early on when the extent of the cracks in the mortgage market were not clear yet. Today it’s easier. Knowing the COVID-19 pandemic is the cause is important as we put together the rest of our playbook.

Step #3: Identify Signals

Next we move into the most important pieces we’re using to determine when we would recommend that suitable investors consider adding equity exposure to their portfolios, where appropriate. We’ve identified five criteria we’re monitoring that we believe may provide investors signals that it may be a good time to consider buying.

“The playbook for investors during this environment starts with visibility into stabilization of new coronavirus cases in the United States, which we hope comes over the next several weeks,” noted LPL Financial Chief Investment Officer Burt White. “Some of the other questions we want answers to are:

Is the US economy in recession?

Has a recession already been priced into markets?

Will policymakers’ response be sufficient to restore confidence?

How many potential sellers might still be out there?”

We’re getting closer to reaching all of these conditions, as shown in the LPL Chart, suggesting an inflection point may be approaching. Look for more details from our bear market playbook this week, including in tomorrow’s Weekly Market Commentary.


View expanded chart


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