This is the point where sticking to investment process matters most.

Every fall we get a sort of tarantula migration through Walker, the little community near Prescott, AZ where I live. The header picture for this post is a tarantula that I took on our hike on Sunday. Every fall they come, they are visible for a while and then they’re gone. There is a cycle to it and we know what it is give or take a week or so. There is also a cycle to when bear markets come, the biggest difference is we don’t know exactly when they will come but we do know they occur every so often. It is a normal part of the market’s process. As a client said to me the other day it’s two or three steps forward and then one step back.

I remember a stat that I think came from John Hussman fairly early in the Financial Crisis that I think was something like the typical bull market gains 180% at the index level and then it gives about half of that gain back. I don’t know if that was accurate but it creates a good context of understanding of how the bull/bear cycle works. The market goes up a lot for a few years and then gives a big chunk back in a shorter period of time and then it repeats. I don’t think too many folks would dispute the repetitive nature of this cycle but nonetheless every time it happens there are investors who do panic and do self-destructive selling when they reach some sort of pain point.

The question is has a bear market actually started? I don’t know, no one does, that is only knowable in hindsight. The odds that one has started have increased for quite a few technical reasons, the simplest of which is that the S&P 500 is below its 200 day moving average (DMA). I’ve said many times before that the index below its 200 DMA signals a problem with demand for equities. The problem may turn out to be serious or very temporary, right here right now there is no way to know…yet.

Since October 3rd the S&P 500 is down 8.5% which is a fast decline. I have long been a believer that fast declines have the tendency to be less serious than when the market rolls over slowly over a period of months. Ok, so this little nugget by itself is a positive but what if this is all part of a multi-month topping process. The S&P 500 is lower than where it opened on the first trading day of the year. A colleague from my time at Fisher Investments reminded me that nine months of negative returns is not a positive omen.