MARKET UPDATE

SUMMARY:

• We currently sit about 15% down for the year in the S&P 500 after being down by 25% a month ago (mid-October).

• The S&P has climbed about 10% in the last month.

• This bear market decline looks similar to the bear market of the 1970’s.

• Technical analysts who rely on stock charts would say that we are still in a down trending pattern. But the technical analysts would become bullish if the S&P index continued to climb another 5% (breaking through the prior peak in mid-August) to over 4,300.

At eleven months into this bear market of 2022, it is a good time to step back and get some perspective. It has clearly been a tough year. As of the market close on Friday November 25th, the S&P 500 is down 15% from its previous peak at the start of the year. The Nasdaq and the Russell 2000 are down 29% and 23% respectively. The Vanguard Total Bond Index (BND) is also down 15% for the year. Bonds did not help your portfolio this year. The S&P hit its low of the year (drawdown) on October 12th - down 25%. Also in mid-October, the Nasdaq reached its low (drawdown) of -34.8%. Since mid-October the S&P and the Russell 2000 have made a nice climb while the Nasdaq has not increased at the same pace.

2022 Data through November 25th

	S&P 500	Nasdaq	Russell 2000
Price change %	-15.3%	-28.9%	-23.2%
Drawdown % (low)	-25.0%	-34.8%	-32.2%

Here is a comparison of the three indices in 2022. The patterns are very similar, but the S&P 500 has fared much better than the Nasdaq or the Russell 2000. In the graph, you can see how the Nasdaq has lagged the other indices in the last month. The market continues to punish technology stocks this year.

Throughout 2022, we have been comparing this bear market with the bear market of the 1970’s. The graphs line up well as you can see below, and the seventies were the last period where we experienced high rates of inflation. The 1970’s market was only halfway through its decline at this point and continued falling for another year. It bottomed out with a price drop of 44%. You can also see from the chart below that markets don't usually drop in a straight line. In both bear markets (1973 and 2022), the markets have what are termed "bear market bounces." There are short attempts at a rebound where prices increase by 10% or even 15% only to be followed by another move downward.

Let’s look at another view of the S&P this year to see what the technical analysts are looking at. Analysts see a succession of lower highs and lower lows throughout the year which is typically bearish. The top diagonal line in the graph below is called a resistance line and the bottom diagonal line is called the support line. As of 11/27 the S&P is approaching the resistance line. If the price breaks through that line it would be a bullish sign for the chartists. But they would be more optimistic if the S&P climbed back to and broke through the mid-August high of down 10% or roughly 4,300 for the S&P. If the index reverses and turns down from here, we would still be stuck in the downtrend.

We are now just about eleven months from the pre-crash peak for the S&P and about thirteen months from the peaks of the Nasdaq and the Russell 2000. The average length of a bear market decline is eleven months, so it is possible that we are in the late stages of this crash. But we just saw that the 1970’s bear market decline lasted two years.

The reality is that no one knows if the worst is over or not. The direction of inflation and the economy and corporate profits will likely dictate when we begin the inevitable rebound. Because of the uncertainty, it is important to follow a disciplined approach to stock market investing. Our BB&H system is down 5.3% for the year and is fully invested at present because of the recent rise in the markets. We are positioned to benefit if the market keeps moving higher and we have automated orders placed to limit losses if the market turns down from here. Stay disciplined, my friends.

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