Trading in the Time of the Bear

A bear market can take away retirement or investment money when you are unprepared to shift your investment strategies.

- Thomas Barmann

Summary: With the suitable instruments and knowledge, you can significantly profit from the bear market as a retail trader, and we share concepts and prerequisites in this article.

Are we in a bear market?

To answer this question, let us qualify what a bear market is.

It is a market that lacks confidence, with extended periods in which stock prices drop significantly across most sectors and major indices such as the S&P 500 index.

The bear market is present and let us jointly discuss what it needs for you as a retail trader to operate in this environment?

Bear markets in the past occurred when the economy came into a recession, characterized by:

• Corporations missing their sales and earnings forecasts 
• Rising unemployment
• Rising inflation
• Uncertainty about the future with a need for change

The most famous bear market in US history was the Great Depression of the 1930s. The 2008 financial crisis was the last example of a bear market, and its impact went around the globe. During the 2020 pandemic, we had a radical market pullback and a quick recovery after; hence, no bear market.

The economy lives off consumer behavior, and aside from relative high employment numbers, all indicators for a bear market warn us that we are there:

WMT came short by 10% of earnings expectations; however, Target (TGT) dropped by 30%: Higher wages, fuel costs, and food costs are cutting into the retail margins and their future earnings expectations. Consumers recognize that wages are up, but they are not going up at the same rate as inflation. The highest cost increases are food and energy, funneling away money that ordinarily would be spent at a more profitable side of Walmart or Target.

Is there a light at the end of the tunnel?