What is the bottom of the stock market

As the old saying goes, bells don’t ring for you at the top.

I know this to be true because investors spent over 10 years in the bull market of the 2010s calling everything they saw at the top.

Regime changes are rarely noticed until after they occur.

The same is true when trying to call a bottom in a bear market.

They don’t announce these things over a PA for everyone to hear.

YOUR ATTENTION PLEASE. THE COAST IS CLEAR. THE STOCK EXCHANGE IS DOWN. SAFE TO REINVEST.

Life would be easier if that were the case. But if everything was obvious in the stock market, it would not offer such a thing fantastic long term returns.

I went down a stock market rabbit hole on YouTube this week and somehow came across this news clip from March 9, 2009:

March 9, 2009 marked the bottom of one of the worst market crashes in stock market history. The S&P 500 fell nearly 60% over an 18-month period.

It was certainly not obvious that the day was low.

Unfortunately, it never is.

The 2008 crash was my first real financial crisis while working in the financial industry. It was a scary time.

Even in the depths of the crisis he felt that things would only get worse.

While the current market has seen the S&P 500 down 25%, the stock market is up nearly 600%, or more than 15%, since that day:

pretty well

I’m not sharing these fantastic returns to show you how easy it is to invest through the depths of a bear market.

On the contrary, it is an important reminder of how difficult it is to nail the bottom in free-falling stocks.

I wish it was easy, but there is no clear indication of when the dust will settle. Just look at the basic indicators at the bottom of every bear market since 1945:

Interest rates, valuations, inflation rates and dividend yields for each of these backgrounds, there is not much consistency.

Sometimes ratings bottom out, but not always. Sometimes bond yields are high when stocks are low and sometimes they are low.

Dividend yields have risen in past market events, but there’s no line in the sand. And inflation rates are all over the place, so even knowing what price levels will be 6-12 months from now may not help you predict where the stock market will be.

You can try to use the economy as a narrative for the stock market, but good luck.

This is going to sound dumb, but the best indicator that lets you know when a bear market is over is price.

A bear market will end when stock prices begin to rise.

The point is that whenever stocks start to rise during times like this, it will feel like a bear market rally or a dead cat bounce that will fizzle out.

But one of those bear market rallies that feels like a false head will turn into a clear bull market.

There is no way to predict when this will happen.

This is the joy of investing in active ventures.

Sometimes you just need a little faith and a lot of patience.

Further reading:
How long does it take for stocks to decline in a bear market?