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Close Reading: On The History Of Bear Markets And Dour Predictions

Jeff Miller profile picture
Jeff Miller


  • Prominent media articles often have dramatic titles that scare readers witless.
  • Investors must look beyond the headline to consider the logic and evidence for the argument.
  • This is an example of an article that might seem scary until you think about the conclusion and the data.
  • I provide a few helpful tips to do this.

A reader saw a disturbing article and sent me a question about it. I suspect that many other readers of this article were also worried. It was a mainstream media article using data from a reputable source. Despite these credentials, the title, Will the stock market tumble back to its coronavirus lows in March? About 92 years of S&P 500 history says there's a good chance, is not supported by the evidence and argument.

Investors must protect themselves by going past the headline. If the conclusion seems important, give the entire article a close reading before taking any action with your investments. I'll use this article as an example. Let's start with the heading for the story:

Since 1928, reviewing the past 25 bear markets, there has been a lower price put in by the S&P 500 index 60% of the time

Suppose this statement is accurate. Is it worrisome?

1. It means that there was a lower price 15 times, but not the other ten. Looking at the actual numbers instead of creating 60% "odds" presents a clearer picture. The chance of returning to the lows would be little more than a toss-up. 25 cases do not provide a very good sample for this type of conclusion. Suppose that you learned that your child's class had 15 girls and ten boys. If a new student transferred in, would the odds be 60% that it was a girl? If you looked at another class at the same school would the gender division be the same?

2. Are the prior bear markets similar to current conditions? No, they actually seem quite different. Every metric I examine shows unprecedented readings. Investors are confronting a unique problem. Will the recovery be as fast as the decline? Will it require revisiting the lows? I don't know, and I won't find out by looking

This article was written by

Jeff Miller profile picture
Seeking Alpha mourns the passing of Jeff Miller, on May 7, 2021. During his time at Seeking Alpha, Jeff attracted a following of close to 40,000 readers and published more than 1,500 articles. He was a portfolio manager at Incline Investment Advisors, LLC. Jeff also was President of NewArc Investments, Inc., and served as a university professor.....................................................................................................................................Jeff is Portfolio Manager for Incline Investment Advisors, LLC.,manager of both individual and institutional investments. A registered investment advisor, he was formerly President of NewArc Investments, Inc. Jeff is a former college professor with a hands-on, real world attitude. His quantitative modeling helped inform state and local officials in Wisconsin for more than a decade. A Public Policy analyst, he taught advanced research methods at the University of Wisconsin, and analyzed many issues related to state tax policy. Jeff began in the financial business as Research Director for a trading firm at the Chicago Board Options Exchange. He investigated anomalies in the standard option pricing models, taught classes for beginning options traders, and developed new forecasting techniques. In 1991 he established a general research consultancy, working with professional traders at all of the Chicago financial exchanges. In 1998 he started NewArc Investments, Inc. Jeff has a commitment to the specific needs of individual investors. It is not a one-size-fits all approach, but one that emphasizes the unique circumstances of each client. Jeff also serves on the board of a small technology company. He occasionally serves as an expert witness in legal cases involving financial markets and hedging.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (47)

@Jeff Miller

I just wanted to say I really appreciate your work on SA. If you look at my past comments on this site, I rarely say that.

"I don't know, and I won't find out by looking at past bear markets."

See that's intellectual honesty and integrity right there. A very, very rare thing on this site.

Please keep writing for SA.


Jeff Miller profile picture

Thanks for reading and for taking the time to write. Comments like yours are a large part of the reward for what is basically a labor of love.

Great article- you really pointed out how critical a critical read of one's own self really is to understand what one is reading while reading!
Glenn Abrett profile picture
Thanks Jeff. You say what I think better than I could ever say it. Anyone who is really, really sure that the market is going this way or that in the short or even intermediate term at this point is either significantly mentally deficient or selling something.
They are! They're all selling their services. And they all have a special 20% off introductory rate starting immediately. Finally, their acumen in picking market turns and directions is so great --- that they're writing investment newsletters for a living instead of sitting on the veranda counting their money.
MAYHAWK profile picture
Excellent article, Jeff.
Grenadier profile picture
Great article and I love your stuff but there is one thing we are all missing......92 years of market historyAt a cant guide us when we have a market that is rigged by the fed and this has never happened before and only began about a decade ago
Robert Keyfitz profile picture
@Jeff Miller, I think you're being a bit hard on this example. The probability is 40% or more of meeting the recent low again. Surely that's a good chance? The way investors are piling back into the market suggests a dose of pessimism may serve them well, especially if they aren't in the habit of reading beyond the headlines.
Jeff Miller profile picture
@Robert Keyfitz

I missed something. How did you conclude that the probability is 40% or more? Doesn't it require at least some comparable data?

Robert Keyfitz- Whether it gets all the way to the previous bottom, pretty close or a little lower, as long as the fed is accommodative, it Should be a pretty good buying opportunity, and at least we know roughly where support is now.
Robert Keyfitz profile picture
@Jeff Miller: I understood you and/or the author calculated probabilities of .6, .4 and .75 for 3 subperiods. Without knowing which one is most comparable to the present, even the most favorable to a long investor (.4) still indicates a "good chance" that it's not the best time to buy so a risk averse long investor might hold back some cash. Did I read too fast? It doesn't seem like such a misleading a headline.
This time is sure different. I was thinking worse with the shutdown, but obviously the market thinks bad news is good news. Oh well still have a toe in, making money is better than losing it.
Old Fireside profile picture
Great article! Thank you. Critical thinking skills should be employed when reading anything. Good point.
Market Map profile picture
In 8 out of 10 cases since 1969, the market has put in a "lower" price after both the trend of Conference Board LEI and the trend of the S&P 500 have signaled "negative" ( table 1 * ). The 1979 and 1980 signals were false.
As there wasn't a Conference Board LEI in the 1920s, extrapolating available economic data may have put the economic trend signal at March 31 1930 ( after the SP 500 negative trend validation of Oct 1929 ). Of note, the market rallied 23% from Dec 1929 - March 31 1930.

* tinyurl.com/ycn4a2a3 ( paste link into browser )
thkalinke profile picture
Just thought I'd toss this out here. The US Civil War conservatively killed 600,000 people - a hefty percentage of the population at the time - and ruined the southern states. The war was followed by years of reconstruction. A person following only headlines might think that the war years were terrible for investments while the years of rebuilding the south were better. Actually it was the opposite. From a peak around the time of Sherman's March, large cap stocks in New York (railroads, Western Union Telegraph) headed south until the late 1870's. Naturally, the long term course of stock prices in New York didn't reflect the damage done to the South, they mostly reflected wartime inflation.

If the Civil War is at all a model of what's to come, then we aren't in terrible danger of another bear market until the federal government stops the helicopter money and begins to tighten its belt. Given Murphy's Law, the government will begin a long period of tightening about the time that my wife and I retire.
thumbsoup profile picture
@thkalinke thanks for that comment.

I was going to joke about preparing for retirement by laying in a supply of coffee and oatmeal. But more seriously, do you consider investing outside the U.S. with that outlook?
thkalinke profile picture
@thumbsoup , No coffee? Now that would be a real crisis, LOL.

Regarding your question, I haven't. I'll continue to buy U.S. based multinationals that suit my temperament and let the company execs figure out the best way to make a buck.
But today, we've also got all the in between plays of AI, and HFT, and MNE hedge funds that are playing behind the scenes now with the Fed, before and Fed, and against the Fed and each other. So, it could be debatable if we ever got out of the first bear market!
RandomWalkie profile picture
Thanks Jeff. Great write-up.
UncleEddie profile picture
@Jeff Miller

I saw that headline and article and agree 100% with your analysis (for what little that's worth). Why people try to see market patterns in contexts which are economically, politically, technologically, and socially wildly different is beyond me. We are currently in an uncertain sideways market within a trading range despite all the awful economic and medical events going on around us. This is partly the result of FOMO on some unexpected therapy or vaccine approval which could cause an abrupt market uptick. However, in a slower time frame, if no economic improvement is apparent over the next 2-3 months and vaccine news looks shaky, we might well sag to the old lows. Right now, I remain long but very cautious.
The author is right that we may or may not retest lows. But unless you're truly a set-it-and-forget it investor, don't forget how long and painful most bear markets are. They usually last until every optimistic, bullish instinct is gone from almost everyone. I just don't see that the market is reflecting the reality of millions of unemployed, much tighter credit and loss of its main buyer (companies themselves doing buybacks.) I'm ok to sit on the sidelines. If we never go back to new lows, that's fine, there are other asset classes that pay in real time so you don't need to rely on whether your fellow investors choose to bid it up or bid it down.
david1345667890 profile picture
How are you enjoying the premature heat wave in the Phoenix. My wife and I also purchased a home in the NW part of the valley and totally enjoy it but am having trouble getting used to 100 degree temps,
UncleEddie profile picture
It isn't the 100 degree temps that are bad; it's the 110+ temps that are the problem.
UncleEddie-But it is "dry heat" Like when you leave a casino in Vegas during the daytime in August.
Jeff Miller profile picture

I'll be able to decide better when we can all move freely again. Everything in our community is closed. But we love having sunny days.

Let me know where you are and we can meet when this crisis is over. I'm also NW.

AspiretoRetire profile picture
Darn. I have been waiting for new lows to pick up some stocks on the cheap.
@AspiretoRetire - outside of the big tech firms that have kept major indices afloat, the other stocks are all still down 20 - 50% from the highs
AspiretoRetire profile picture
I track how far those on my relatively large "buy" list are from their 52-week highs, and how far they are from their 52-week lows. Most are closer to their highs than their lows, and on average are 46% above their lows. There are some good buys out there, but not as good as if we got a real retest of the 52-week lows for the market. At this point, no way to know if we will ever get the retest. I would empty my cash accounts with purchases if we did.
Clrodrick-Thank goodness some stuff still seemed to be undervalued, that is where I am playing. Whew, lots of ammo, still trimming seemingly "overvalued" stuff, just sold PRS, the last BBB stuff I had left on a horrible miss by PRU, PRS still trading way above call prices thankfully. Nobody got broke taking a big profit.
Praveen_Chawla profile picture
The problem is lots of "subscription salesmen" out in droves. Hyperbole sells - the more extreme the better.
tdanzig profile picture
Rationality and logic win out over hyperbole. Thanks Jeff.
You're correct that this is a good write-up. But going along with the reasoning presented in it, what leads you to say "Rationality and logic win out over hyperbole"? My twitter-like instantaneous response based on no empirical evidence whatsoever gives it 60/40 in favor of hyperbole.
OceanFalls profile picture
Thank you much for this write-up.
Goes to show you, bad news sells !
OceanFalls-Both bad and good news sell, because both appeal to confirmation bias, as people seek confirmation of what they already believe. Have you noticed how many articles on SA are promoting the prospects of a particular company, etf or sector? What ratio of articles are advocating selling any particular asset?
Good Walk profile picture
Yes indeed. You can prove anything you want with a set of numbers. Association is not correlation. Add spin to the mix and voila - Armageddon. Don't forget national elections are coming. The uncertainty of political change, the media spewing fake news 24/7 concerning the horrors of the shamdemic, unemployment, mounting death toll, etc. will make it sound like a total social and economic meltdown - in order to get Biden into the WH, and Dem control of Congress. The media dog-piling on all of that negative news is going to spook the market something awful. Very plausible that results in a deeper crash. It's gonna be wicked ugly starting this summer, and far worse as November approaches. Get ready. Have plans. It will be very difficult to filter out the fake news media this time around.
Goodwalk-And by the same token, the White House, conservatives, the sell side, and those trying to unload their positions before they think things might tank, will paint ever rosier pictures of what they "think" will happen. Nobody knows.
I think it looks like a very bumpy road ahead with a lot of problems facing this Country and the world, along with some bad actors out there. Hope things start to look better.
Thanks. More posts like these please.
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