Tuesday, February 6, 2018

Sometimes the bear eats you

Embed from Getty Images
The bulls have begun to run again on Wall Street

It's one of the oldest sayings around, likely attributable to an idea first passed into public consciousness by 19th century American writer Ralph Waldo Emerson: "Sometimes you eat the bear - sometimes the bear eats you."

For more than two centuries since even before the founding of the New York Stock Exchange, market up and downs have used the terms "bull" and "bear" to describe down and upturns and waves in markets.

A "bull market"comes about when the markets are rising, charging forward like a bull. A "bear market"comes about when they slow down and investors sell stocks off, almost as if they are hibernating.

That's a simplistic explanation of the terms. There are a number of theories as to how they came about. But it serves well enough to describe how those terms are applied today.

Suffice it to say that since President Donald Trump was sworn in back in January of 2017, the markets had been charging forward. The Dow Jones Industrial Average rose more than 5,000 points during the President's first year in office.

The "Dow" represents the stock performance of 30 major U.S. companies. These companies currently represent a wide swath of impact across the American landscape, from Microsoft to McDonald's, DowDuPont to Disney, and dozens more.

As the bull market charged forward, the President took credit. He believes that the policies of his administration pushed those markets forward. From reducing and eliminating regulations on businesses to reducing taxes, the climate has certainly been favorable to business.

It has also been favorable to average Americans, as those companies have hired more employees and given out raises and bonuses. It was no wonder the President mentioned it during his first 'State of the Union' address just last week: 
"The stock market has smashed one record after another, gaining $8 trillion in value.  That is great news for Americans’ 401k, retirement, pension, and college savings accounts."
However, a number of financial analysts have warned that a market 'correction' was inevitable. At some point, investors were going to look to capitalize on their gains, taking profits and sitting back to find their next opportunity.

Such a market correction would come in the form of a downturn. That correction finally came on Monday, and it came in a big way. The Dow plunged down over 1,600 points at one time before finally closing with a 1,175 point loss. It was the largest single-day loss in market history.

The bear was hungry, and it was eating.

The Democratic Party's media propaganda wing, led by CNN, quickly seized on the moment to try and make a political statement. Their headline blared "Trump's embarrassing split-screen moment on stocks."

In the piece, CNN's Stephen Collinson wrote the following:
"As the President touted his economic agenda in Ohio on Monday, his face stared out of millions of television screens next to blaring red graphics and yellow numbers whirling like the reels on a slot machine, telling the story of a full-bore stock market plunge. For any president, the split screen moment showing an apparent disconnect between his message of a roaring economy and hemorrhaging equities would be a little embarrassing. But for Trump, who has constantly boasted about almost daily record highs on Wall Street since his election and told Americans that he alone is responsible for their healthy 401(k) balances, the mismatch was even more pronounced."
However, the embarrassingly biased cable news giant forgot a simple, basic rule of the markets. Just as the bulls will run for awhile, the time will come for the bears to slow, eat, and hibernate. History shows that those bears only eat so long before the bulls inevitably come charging back.

Derek Thompson for The Atlantic wrote about the rise of the markets under Trump back in October 2017. He stated it succinctly:

"It’s important to remember that the stock market is not a referendum on the state of liberalism or conservatism. It is not a barometer of moral progress. And it is not a report card on the president of the United States (even if he wishes it were). The stock market is a collective daily wager on the future performance of the nation’s public companies. And they are, to employ a technical term, making a boatload of money right now."

And now, just like that, here we go. I suppose that the bears may have had their fill on Monday. Because now on Tuesday, as I write this with five minutes to go before the closing bell on Wall Street, the Dow is up nearly 500 points.

Oops, CNN. What will your headlines have to say about that?

The fact is that the history of the U.S. stock markets is that they go up, over time. Sure, there will be corrections down. Sometimes they will be big ones. The key is not to panic, and not to politicize such market movements. Remember, when you are betting on U.S. stocks, you are betting on the American economy to succeed.

Sometimes you will run with the bulls. During those times you will do a lot of bear-eating. And then sometimes the bear will eat you, taking a bite out of your 401k and retirement funds. 

Don't worry. Don't pull out of the market. The bulls will be back, charging harder than before. Just look at today's Dow results if you need a little reassurance right now.

No comments: