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Bear Market Rallies Offer Exits From A Burning Building

May 01, 2020 7:48 AM ETEWC, BBCA, FCAN, HEWC, ZCAN, FLCA14 Comments
Danielle Park, CFA profile picture
Danielle Park, CFA


  • It is important to understand that dramatic rebounds are typical within bear market down channels.
  • There is no sector in which Canadian investors are more overweight than financials.
  • This time the coronavirus is impacting every sector worldwide, and Canada is more risk-exposed thanks to record-high household and corporate debt along with a real estate bubble and oil crash.

Following the fastest 37% drop in stock markets ever (February 19 to March 23), short-covering and dip-buying bought a sharp bounce in April. Regret over losses quickly morphed to fear of missing gains as risky assets rallied and speculators piled on. It is important to understand that dramatic rebounds are typical within bear market down channels. Gary Shilling reminds of counter-trend rallies within the infamous 1929 to '32 bear market in his May 2020 Insight this week, as follows:

The Dow Jones Industrial Average peaked at 381 on September 3, 1929 and then plunged 48% to 199, a little over two months later on November 13. Many believed that the decline had corrected the excesses of the 1920s and rushed back into stocks, which rallied 48% to April 17, 1930. Of course, 48% up didn't offset the previous 48% down so the Dow then was 294 and the rise had offset just 52% of the earlier loss…by April 1930, the unfolding depression killed all hopes of a real, for-sure bull market as the unemployment rate leaped from almost zero in 1929 to 25% in 1933. The previous recovery in equities proved to be simply a bear market rally and stocks fell another 86% to their final low of 41 on July 8, 1932, a plunge from the September 1929 peak of 89%.

Surely, the crash of 1929 is an outlier? We hope that it is! Still, there's no denying that we are today in the throes of the deepest economic contraction in at least a century. And we came into it, with the highest debt and financial leverage ever on record. While that leverage magnified asset appreciation in the 'everything bubble' of the last decade, it is also certain to magnify losses on the way back down. That's just how leverage works.

This article was written by

Danielle Park, CFA profile picture
Portfolio Manager, financial analyst, attorney, finance author, a regular guest on North American media. Danielle Park is the author of the best selling myth-busting book “Juggling Dynamite: An insider’s wisdom on money management, markets and wealth that lasts,” as well as a popular daily financial blog:www.jugglingdynamite.com Danielle worked as an attorney until 1997 when she was recruited to work for an international securities firm. A Chartered Financial Analyst (CFA), she now helps to manage millions for some of Canada's wealthiest families as a Portfolio Manager and analyst at the independent investment counsel firm she co-founded Venable Park Investment Counsel Inc. www.venablepark.com. For two decades, Danielle has been writing, speaking and educating industry professionals and investors on the risks and realities of investment behaviors. A member of the internationally recognized CFA Institute, Toronto Society of Financial Analysts, and the Law Society of Upper Canada. Danielle is also an avid health and fitness buff.

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