The Bare Necessities: A taxonomy of S&P 500 bear markets

Bears are beautiful to look at from a distance. However, sometimes they move closer to us and can be scary. This is why it is important to know their habits and characteristics.

Bears can inspire an instinctive sympathy; sometimes they can even look tender. Who doesn’t remember with a smile the funny and clumsy Baloo that, in Disney’s movie “The Jungle Book,” sings to Mowgli the song “The Bare Necessities,” which sums up his philosophy of life? But bears are nice as long as you see them from afar — up close, they are big, they can get ferocious, and their growl can intimidate. They can be especially scary for investors — the bear evokes sharp declines in stock markets, sometimes associated with other unpleasant situations, such as recessions.

It is good that the bear, in equity markets as in nature, is a rather reserved animal. It doesn’t get out often and does not like to be seen around. Sometimes, however, a bear comes out into the open, not always preceded by clear signs of his intentions. Whoever is near the bear will likely try to escape far and quickly. If the encounter was a surprise, the escape is often hasty and messy.

A situation like this has been happening recently in financial markets, equities in particular. There had been some rustling of leaves, some dried twigs crushed by a timidly moving bear’s paws. But the global explosion of the COVID-19 pandemic has made the bear angry, and now the world is divided between those who ran away in a disorderly way to escape the bear’s wrath and those who instead lie in a sheltered corner, waiting for a good opportunity to regain possession of the forest.

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