Ken Fisher: How to Spot a Big Bear Market
Ken Fisher explains how to distinguish between temporary market corrections and sustained bear markets, emphasizing that real bear markets typically start gradually and accelerate their decline in the final third of their duration.
Summary
Ken Fisher addresses the perennial challenge of distinguishing between short-term market corrections and sustained bear markets. He defines bear markets as declines exceeding 20% in broad market averages, while corrections are drops between 10-20% that are typically short and sharp. Fisher notes these percentage thresholds are somewhat arbitrary, and markets that drop below 20% are usually classified as bear markets regardless of duration. The key distinction Fisher makes is that sustained bear markets behave very differently from corrections - they tend to start gradually with a rolling pattern rather than sharp declines. He provides a crucial timing framework for major bear markets accompanied by recessions: the first two-thirds of the bear market's duration typically accounts for only one-third of the total percentage decline, while the final third of the time period sees two-thirds of the total drop. Fisher emphasizes that the most important factor to watch for in identifying a major bear market is 'that big bad thing that people aren't talking about' - an underlying issue that allows initial problems to cascade into a severe, prolonged decline.
Key Insights
- Fisher states that bear markets exceeding 20% decline are usually classified as such even if brief, making the 10% and 20% thresholds somewhat arbitrary distinctions
- Fisher argues that sustained bear markets tend to start gradually with a rolling pattern rather than beginning sharply like corrections
- Fisher claims that in major bear markets accompanied by recession, the first two-thirds of the time period only accounts for about one-third of the total percentage drop
- Fisher explains that the back one-third of a bear market's duration typically constitutes about two-thirds of the total decline
- Fisher identifies the key warning sign as 'that big bad thing that people aren't talking about' that allows initial problems to cascade into severe declines
Topics
Transcript
[0:00] So one of the perennial questions that is pertinent to almost everyone that worries about where we are in the market at a point in time or all points in time is how do you tell the difference between a short temporary decline like a correction or a sustained bare market. A bare market is thought of as a decline bigger than 20% in the broad [0:31] market averages. The correction is thought of as something that's short and sharp, got a scary story, is a drop bigger than 10% in those same kind of averages, but not bigger than 20%. Those numbers 10 and 20 are somewhat arbitrary lines in the sand. But I will tell you that…
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