What is a Bear Market?

the Order, Kernie Whoalbury and a waddery woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on a wondery country, acknowledging the elders, the ancestors and the next generation coming through as this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow.

portfolio and I'm still behind. And there's just been this consistent piece of conversation around our investments as a whole not doing well. And I think it started with like, oh my gosh, is it spaceship and we're like, no, it's not the platform, it's the market as a whole, and we have been going in this direction down. Bear market spoiler is when the market decreases in value. We'll

get to that in a hot second. But if we look at the community and we look at the markets as a whole, I feel like we've all been really concerned about it and we haven't really known what's going on. And obviously there's lots of implications. There's been war and COVID and you know, after the bushfire, has so much happened in Australia but also in the wider world, and

it now makes sense to be talking about it. Not that we haven't been this entire time, but we're currently or now officially in what is known as bear market George. A bear market, to define it really quickly, is when the market falls by twenty percent or more from its

fifty two week high. So many people say that it is typically a sign of negative investor sentiment, which kind of makes sense, like we're all feeling a little bit apprehensive, we're more likely to, you know, stockpile some cash under the mattress because of the tumultuous times that might be ahead,

especially after what we've been through. But essentially, a bear market is where people are selling shares, getting rid of things, stocking away their cash in their mattress, and hibernating for the winter, which is where I mean, there's a lot of hearsay around where bear came from, but we're going to define it as we're hibernating. So a bear hibernates cute, right, sure. The opposite bull market. You're not following yet, are you? No?

following me? Now? I feel like bear.

markets have gone down. But when in doubt, zoom out, so like when you're in doubt, obviously it feels really scary, but we have been through so many market changes over time. Like if we now look at a chart that shows us, you know, investment performance over time, those blips that we see on a market chart look really small now, but then you look and go, wow, hold on, zoom in. That's the GFC in two thousand and eight, two thousand and nine that now look like a very small bump.

It went down and then it's obviously recovered and gone back. We're at one of those blips again. So it's going to feel really dramatic because twenty percent nobody Like if I said to you, ge, do you want to invest? You go yeah, V then you lost twenty percent. You're gonna be happy with me. I'm want to be loving that.

is selling. The market's going down. I want to save my money, like I don't want to lose any more. So they often crystallize their losses and pull their money out and they're like, no, no, no, I don't want to lose more, when in reality that can actually harm you because you're pulling money out while it's worthless instead of just riding the wave and going no, I know that this is how it works. We're going to ride that wave and it will rebound at some point in the future.

making so much money. Like everyone's gloating on shees on the money, how much they're making their spaceship and their raise accounts, and stuff. Remember that, and then they were complaining about it because they're like, is it spaceship and we need to remember that it's actually market driven, not platform driven. If the underlying assets that your platform own

are you know, really reflective of the market. But essentially, right now we're going through a market correction which has been going on for a while now, and it's actually due to one inflation, which we're hearing a lot about at the moment. It's due to the ongoing impacts of Russia's invasion into Ukraine, which is still terrifying, still baffles me in twenty twenty two that that is what's going

on and the implications of that on global trade. So obviously those things are really significant, but that is from what all the economists are saying, is what is driving current downturn in the market. And when you say that, v is this an Australian situation or is it global situation? It is global situation. So it's not something where it's like, oh my god, it'sh Australian shares. No, this is across

the board. So a couple of weeks ago, the inflation numbers out of the US came through and everyone was really scared, but they were higher than expected, and we know this because we've been talking about it in the community. But essentially it hit a four decade high in the US in Australia of eight point six percent, So inflation in the US is now at a level that has not been seen since December nineteen eighty one. So it makes sense that we're a bit like, what is going on?

This is really scary. So we've seen a lot and here in Australia, the Reserve Bank actually early June, I believe it was like the seventh of June, an announcement came out that the Reserve Bank had the single biggest rise in the cash rate in twenty two years, which

is again scary. And Australia's Central Bank tried to quash inflation before it got out of control, and the RBA board, they have a regular monthly meeting, they lifted the cash rate fifty basis points, so it went up to zero point eight five And if you follow us on Instagram, we posted about that and that was much higher than what everybody expected. But essentially that happened because we wanted to quash inflation, like it's not going to stop. It

but it's just stopping it impacting you as significantly. And then closely following that, we got the announcement that Albow had increased the minimum wage, which is obviously a really good thing, but I do think that was really driven by the fact that inflation is so significant right now. If you're a She's on the Money regular, Hi, thanks

for listening. But also you've heard Jess and I and George talk for weeks on the Friday Drinks episodes about like fuel prices and how expensive things are, Like this is impacting not just investors but everyday people who are just trying to get to work and put food on the table. So I think it's important to look at what a bear market means, whether you're an investor or not. It's not just like, oh, if you're a serious investor, the bear market's really important to understand. No, it's not.

It's important to understand if you're an individual who uses money, full stop, end of story, because inflation in the US has you know, obviously been wild and not been seen that high since December nineteen eighty one, Like that's crazy to think that we're back there, and that's obviously then sent the stock market further into a bit of a bit.

down pretty significantly. I don't like seeing that. Just because I run cheese on the money doesn't mean I'm immune to feeling sick when I look at my investment. But like I can't tell you you never get over that. But what you do do is you educate yourself and you're like, no, Victoria, you can't sell your asset. Stop doing that, Stop thinking like that, and go back to the advice you give everybody else. Yeah, still easier to give advice than he needs to take it.

that means and how that works. But we are young, George, and we're in that very privileged position where you know, if you look at the risk return chart we have on our side time and I've spoken to people in our community who are sixteen and listening to the podcast. I've spoken to people who are sixty six and listening

to the podcast, and we're all in different circumstances. To me, if you are, you know, a millennial and you're an investor, it is not anything that you need to jump up and down about and really worry about unless you have a very volatile employment situation, in which case I would always recommend an emergency fund regardless of who you are or what you do. But from my perspective, these types

of things really impact you. If you're close to retirement, where you know, a significant downturn in your investment portfolio or your superannuation is going to mean that you're not retiring within the timeframe that you want to. It could also mean that, you know, George, let's say you own a home and you're like, oh, v I wanted to own the home for five years, but then a recession hits and it's not worth as much as you wanted

it to be worth. So therefore your time frames on your goals have changed, because we actually should push that goal out because I don't want you losing money by selling that property today and not getting what you needed

from it, if that makes sense. So a lot of privilege plays into this as well, because during a recession, a lot of people are forced to do a lot of things that they wouldn't want to do, especially when it comes to money, which is why I think it is so important to go back to that emergency fund piece and talk about what that means. But essentially all of that in mind, and the fact that you know inflation is so prevalent and such a big key point,

markets are now taking that into consideration. Hence the fall like that has been very well timed, the fall in the market with when inflation was announced in Australia internationally, Like, that's what is driving that this time. And as much as the economic news isn't great and it all sounds really negative, let's flip this. Shares are on sale. Baby. That's a good point.

see twenty percent off, you get excited. But when we see it in the share market, we we nearly wet our pair. It's Georgia King.

you know people are going to be immune from. But I think we need to go back to behavioral investing and understand that the behavioral investing chart has ebbs and flows, and Warren Buffett said it best be greedy when people are fearful, and be fearful when people are greedy. And that goes back to if the market's really high and people are really excited. Remember Bitcoin when everyone was like super stoked on it, and every man and his dog

was buying a bitcoin. Not that you can buy a single bitcoin because that is now worthwait much, but they were buying parts of bitcoin and then it crashed and then everybody was really worried. Like that's the emotional rollercoaster that is investment, that is the investing journey. And I think We need to just be super aware of what that means and how that works, because we can get

carried away and we can crystallize losses. Like how many people in the She's on the Money community have we seen George Message just going oh my god, my spaceship portfolio was down, so I just sold all my shares or I got rid of it. And I'm like, oh my gosh. Like I feel mean saying this, But have

I taught you, sir? Like I feel like a mum at the dinner table, Like I remember way back when, right, I was like at the dinner table with my dad, have no idea what I was talking about, but I was like, Dad, there's this great thing I did XYZN. He just looked at me and he's like, are you joking? And I was like, Dad, I'm really excited, Like why aren't you sharing my excitement for this? Obviously very independent in discovery, he is, I have been telling you that for months.

comes from a lack of education. The more educated you are about something, the less fearful you are of it, because you're like, well, I know what that is. It doesn't matter what it is or how it works. Like people who are super educated on ghosts. George not scared of them me terrified. I love this, but it makes sense, right, Like the more you know about a particular topic. Our producer is laughing at us. I don't know if I

can carry on. But the more you know about a certain topic, the more comfortable you are with it when confronted with it.

US stock price declined. It declined twenty two percent from January. It peaked in January, and share prices have been bouncing around for the last twelve months. And now we're seeing a term being put on that. But we all kind of saw this coming. We've been having this conversation. We've seen it. I've said before on the podcast, Well, I feel like there might be a recession coming, like this makes sense, and then economists are saying the same thing now,

and I'm like, yeah, this makes sense. I'm an educated investor, though, and I want to be able to empower the rest of the community with that education so that they have that confidence to feel like, okay, cool, Like, let's reframe this. Let's see this as an opportunity because I'm young, and I can create wealth and I can do this, and I can do that instead of going, oh my gosh, everyone's talking about it being a terrible market, so your shares are on sale.

And as we said before, a bear market is when we have a minimum of a twenty percent drop. And so in the month of June twenty twenty two, we saw the US stock price, so the SMP five hundred index, which you can ask me in a hot second to what that is entered officially bear market territory when we had a twenty two percent decline from its peak in January, so officially we're there, but a market correction is about ten percent, and then a bear market's twenty.

heard this before, right, Like that feels familiar. So the SMP is actually called the Standard and Pause five hundred, or simply put the SMP five hundred, and it is a stock market index tracking the stock performance of five hundred large companies that are listed on the US Exchange in the United States, and it is one of the most commonly followed indices, so it is one of the most commonly used I guess measures of what's going on in the market. So if you ever hear sm P

five hundred, it's actually not that complex. It's just the five hundred top companies that are used for us to measure what's going on in the market.

how long it's going to play out for. Then the GFC, which is the Global financial crisis, which we should do an entire episode on I reckon. That would be from a financial advisers perspective, Maybe we should go out to the community and they even ask so they want this, but like, what is the global financial crisis? Why are people still talking about it? When it happened in two thousand and eight, two thousand and nine, What started it?

How did that work? But essentially, experts they declare a recession when a nation's economy experiences negative gross domestic product GDP. GD probably heard of that before, rising levels of unemployment, falling retail sales, so people are shopping less and contracting measures of income and manufacturing for an extended period of time, which we I feel like we're starting to feel right in the conversations we're having so lettus lettus, which is

twelve dollars lettuce, twelve dollar letters, petrol, petrol. All of those things are indicators, all of them. All the lettuces and all of the petrols are indicators. But they're genuine indicators of recession because we are in a situation where our product and our ability to supply product to the masses is not able to keep up with demand, and so things become astronomically expensive and they become really limited resources.

And watching this happening is an indicator of recession. But you can also see how it might start to happen when there's global war and looking at what's going on in Russia invading Ukraine and how that's impacted the ability of product to flow around the world, and you see it in our industry right. Like, I'm probably a little bit more privy to this at the moment because as a lot of you know, I'm trying to renovate my

house and it is so expensive. I'm talking to my build up and they're like, look, they we're going to be up for a minimum of thirty percent more because that's how much more product is worth now. So like timber, not that everybody else knows what this is. But timber prices have increased by a minimum of thirty percent. So now for me to build a wall, it is going to be thirty percent more. That is putting significant pressure

one on my budget, but on everybody else's budget. Like, think about the building industry and how many contracts have been signed to you know, build your metricron home that's now costing them more. And there are these contracts where they're like, great, I signed this contract. It's now going to cost that business far more. That's going to significantly

impact that business negatively. So it's kind of like a snowball and you pick up small things along the way, and small things become big things, and that big thing happens to be the recession.

away with it's got free. But essentially it's kind of like the expansion and contraction of the market and working out like if you grow too fast, your bubble's probably going to pop, and that's kind of what's happening here.

average recession lasts eleven months? So if we look at the average lengths of recessions from nineteen forty five until two thousand and nine cough, that was when our last one was, the average recession actually lasts about eleven months, or let's call it a year. And that is kind of scary because we're not talking about like, oh, gee, it'll just be a couple of months. Like eleven months is a long time, Like that is longer than just making a baby. Is that a good measure of time? Sure?

I feel like it's too measure of time. It's a really good measure of time. I literally use the time it takes to create human life as a measure of things. It is quite good. Like if someone says, oh, three months, I'm like, oh, that's like baby is cooked. Yeah. Literally, if someone's like ten months, I'm like, guys, that's so long you could literally create human in that period of time.

spoken about them. Bushfires, coronavirus, war like, all of these things add up to economists going there's probably gonna be a recession at some point, but there are some indicators or warning signs that can give you a little bit more time to figure out how to plan for a recession or when one is coming. So the first again financial advisor had is being put on an inverted yield cycle. So a yield cycle is a graph that essentially plots market value or the yield, So yield is essentially how

much money it makes. And when an economy is functioning normally, yield should be higher on long term bonds and you know, solid assets. But when long term yields are lower than short term yields, so when long term cash coming in is lower than short term cash coming in, it shows investors are a little bit worried about recession. So it means that they're you know, not putting so many eggs in so many baskets. They're holding their cards a little bit closer to their chests. And this is like quote,

a phenomenon known as a yield curve inversion. And as a financial advisor, I obviously look at this and I go, okay, cool, that makes sense. I read the textbook. But economists will look at that and go, hey, this has been something that has happened before every single recession that has ever happened. The next is declining consumer confidence. So consumer confidence is

like how willing you are to buy stuff? Like right now? Gee, if I said got and invest, you'd be like, ah, but the market's down, like not sure if I want to do that? And this is able to be measured with consumer spending. So if surveys that are done on you know, what Australians and what Americans are spending shows us sustained dropping consumer confidence, it could be a sign

that we're going into some economic trouble. So essentially, people are spending less because they're trying to save more money because they're a little bit apprehensive of the future. Another is a sudden stock market decline, so we have just seen that and ours was a result of inflation. And then the other is rising unemployment. And we mentioned this before, but it essentially goes without saying that if people are losing their jobs, it's a pretty bad sign for the economy.

Like that ain't a good thing. And just a few months of pretty steep job losses is a pretty good indicator that there is an imminent recession, because that is businesses. It's not because people are not willing to work and they're all going on holiday and not coming back. It's because businesses are being a little bit more apprehensive and they're less likely to hire. They might go, gee, like, I know we want to expand, but maybe let's put

this off another quarter or another six months. So there's less jobs in the job market in saying that that's quite contradictory to the information that she's on the money's been talking about about the great resignation, right, like everyone's getting a new job and it's really great. But that is actually a really entitled view because that's for educated people, not for the workers that usually lose their jobs during a recession. If that makes sense.

in good and bad times. And that's where people fall back on industries that are going to stand the test of time, Wollice Coals banks things that are essential for the operation of our economy and less likely to invest in things that are a little bit more frivolous. So like people often end up pulling back on things like tech where they're like, oh, I don't need that so much, but I will invest in something that I know is tried and true. In saying that, something that I think

you're going to find really interesting. Is the lipstick effect. Have you heard of this before?

are more likely to buy less costly luxury goods. So instead of like buying designer bags and shoes and stuff like, we're more likely to go and make ourselves feel better with small purchases like lipstick interesting, and this is where cosmetic companies thrive during a recession, which I probably bet you didn't see coming.

think it is. So not only is our community feels so bad, but not only is our community much more likely to lose their current job, it's going to be harder to find a job replacement since more people are out of work and looking for a job at the same time. So it's a very competitive environment to be and if you're looking for a new role, So people who are keeping their jobs, they might see no pay rises.

So as much as inflation's going up and we have this expectation that our employers will meet that level of inflation, they might not be able to afford to do so, and it might make it harder for you to negotiate further pay rises, which obviously actually's on the money. We're always like, no, you're worth but also, let's read the room, and let's see how hard it is for our actual community. Right, So it's going to be really dependent on the type

of business that you're in. You might be thriving, you might get a massive pay rise. In a lot of industries that might not be as possible. Investments like shares and bonds and real estate is probably going to be valued less, which could be a blessing or it could be a curse. Like if that's your investment and you're looking at it going, oh my gosh, my ship football, it's worth so much less. Not a good thing. It

will recover, It's okay, don't stress. But it also could be a great opportunity if some people in our community have been hustling and hustling to get their home deposit together. And I'm hoping this is how it works out for miss Jizicarucci. Property is going to be hopefully a little bit cheaper, a little bit more affordable, a little bit more accessible. Like I mean, surely everybody is seeing that coming. Given avocados are what a dollar twenty at the supermarket.

Thing that I'm not that's true. If we can afford avocados at that price, surely soon millennials will be taking over the property market. So that is going to happen. Obviously, when we see downturn in the share price, it means that our retirement savings are going to look a little less sexy. If you're in that situation where you are planning for retirement, definitely speak to a financial advisor or

organize your financial affairs to be a little bit more stable. Unfortunately, if you're in a situation where you know the prospect of losing your job is real, it might make paying bills really hard. It might make you know, keeping the mortgage repayments up really challenging. And I think that that's where to day and every day I'm a stauncher advocate of an emergency fund, but I think now more than ever, it's just really important to have that in your back pocket.

Or even if you're in the privileged position of being able to beef it up a little bit more, I absolutely would consider that because it's so important. As a business owner. I know there are lots of business owners in the Shees on the Money community because a little while ago we did a census and twenty percent of people said they were either a business owner or a

side hustler. Really really cool, and thankfully in Australia we are in again a very privileged country where during a recession our government usually tries very hard to support small businesses, but small businesses are more likely to feel the brunt of it, purely because people are like spending less and small businesses are more likely to feel that because they're already harder to access, right, I think understanding what a bear market is and what preparing for a recession actually means.

But I think that all of the things that I'm recommending are actually thinks we should be doing, regardless of the economic situation, to put ourselves in the best possible financial situation. So I don't want to end this on a oh my gosh, everything's going up the wall, like this isn't good at all, Like it is what it is. We went through a market correction earlier this year when it went down by ten percent. We're now at twenty two percent, and it's been labeled a bear market. It's

not as scary as you think it is. The market always recovers. If you are in doubt, zoom out and have a look at the bigger picture and see what every other market recovery has looked like and how long that takes. But there is always light at the end of the tunnel, and this is just how economics works perfectly.

especially if you're feeling really daunted at the moment. It's the safest place and there's going to be a lot of girls in there that are feeling the same way. And we can all support each other.