Some eager stock bulls I monitor are advancing this convoluted rationale. The outline of their argument is that when things get bad enough, good times must be just around the corner.At the market’s recent closing low, the S&P 500 SPX, +1.19% had dropped to 25% below its early-January high. According to one version of this “so-bad-it’s-good” argument, the stock market in the past was a good buy whenever bear markets fell to that threshold.
With their argument, the bulls are trying to convince themselves that they can survive the bear market, rationalizing that the market will be higher in a year’s time. As Swiss-American psychiatrist Elisabeth Kübler-Ross put it when creating this five-stage scheme, the key feature of the bargaining stage is that it is a defense against feeling pain. It is far different than the depression and eventual acceptance that typically come later in a bear market.
Numbers don’t add up Further support for this bearish assessment comes from the discovery that the bulls’ argument is not supported historically. Only in relatively recent decades was the market reliably higher in a year’s time following occasions in which a bear market had reached the 25% pain threshold. It’s not a good sign that the bulls are basing their optimism on such a flimsy foundation.
That’s the identical percentage that applies to all days in the stock market over the past century, regardless of whether those days came during bull or bear markets. So, based on the magnitude of the bear market’s losses to date, there’s no reason to believe that the market’s odds of rising are any higher now than at any other time.