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Bear Market Playbook

Having a playbook to follow can be very helpful during bear markets. It helped us here in the LPL Research department in 2008–09, and we think it can be helpful for the current situation. We all want to know the answers to the toughest questions, such as, how much further might stocks fall?  Are we in a recession in the United States?  Also, how long will the crisis last?  These are extremely difficult questions to answer.


Step #1: Follow your plan


Our playbook for this bear market, which has some similarities to the version we used in 2008–09, starts with suitable investors having and following your long-term investment plan. Of course, it’s times like these when following a long-term plan is the toughest.


Step #2: Identify the cause


This was difficult in 2008, especially early on when the extent of the cracks in the mortgage market were not clear yet. Today it’s easier. Knowing the COVID-19 pandemic is the cause is important as we put together the rest of our playbook.


Step #3: Identify Signals


Next we move into the most important pieces we’re using to determine when we would recommend that suitable investors consider adding equity exposure to their portfolios, where appropriate. We’ve identified five criteria we’re monitoring that we believe may provide investors signals that it may be a good time to consider buying.


“The playbook for investors during this environment starts with visibility into stabilization of new coronavirus cases in the United States, which we hope comes over the next several weeks,” noted LPL Financial Chief Investment Officer Burt White. “Some of the other questions we want answers to are:


Is the US economy in recession?

Has a recession already been priced into markets?

Will policymakers’ response be sufficient to restore confidence?

How many potential sellers might still be out there?”


We’re getting closer to reaching all of these conditions, as shown in the LPL Chart, suggesting an inflection point may be approaching. Look for more details from our bear market playbook this week, including in tomorrow’s Weekly Market Commentary.


View expanded chart


IMPORTANT DISCLOSURES


This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.


References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.


Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC.


Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).


Insurance products are offered through LPL or its licensed affiliates.  To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

If your representative is located at a bank or credit union, please note that the bank/credit union is not registered as a broker-dealer or investment advisor.  Registered representatives of LPL may also be employees of the bank/credit union.


These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, the bank/credit union.  Securities and insurance offered through LPL or its affiliates are:


Not Insured by FDIC/NCUA or Any Other Government AgencyNot Bank/Credit Union GuaranteedNot Bank/Credit Union Deposits or ObligationsMay Lose Value


For Public Use | Tracking # 1-966306

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