Letter From the CIO: What to Keep in Mind During a Bear Market

This article brought to you in collaboration with our colleagues at Laird Norton Wealth Management.

Last week was a historically bad week for the markets. I would like to offer some additional perspective on the magnitude of what is happening as headlines continue to provoke investor sentiments. The S&P 500 dropped six percent, the biggest weekly drop since March 20, 2020, when the U.S. economy was shutting down to fight COVID-19. To wit, the S&P 500 has dropped 10 out of the past 11 weeks and the Dow Jones Industrial Average is down 11 of the past 12.

The first half of 2022 is shaping up to be one for the record books for capital markets given significant inflationary pressures not seen for decades and a tightening Federal Reserve. The major equity indices are now in bear markets, defined as a drop of 20% or more from latest peak, with few areas of the investment landscape providing shelter. Here are some statistics through last Friday, June 17, 2022:

  • S&P 500 (domestic large-cap stocks) was down 23% from its 52-week peak
  • Nasdaq composite (domestic stocks) was down 33% from its peak
  • Russell 2000 (domestic small-cap stocks) was down 32% from its peak
  • ACWI ex US (international stocks) was down 24% from its peak
  • The average stock in the Russell 3000 (broad equity market index) had declined 44% from its peak

Other notable aspects of the second quarter so far include:

  • High-yield bond spreads (the difference in yield between high-yield bonds and investment-grade corporates and an indicator of credit stress and risk aversion) have expanded by 100 basis points in June alone, reaching 513 basis points and thereby generating eight percent yields, a level we have not seen since the pandemic extremes in April 2020.1
  • Typical portfolios made up of 60% stocks/40% bonds are down approximately 18% year-to-date. You must go back to 2002 and 2008 to find the second-worst six months to begin a year at “just” down six percent. You have to go back to 1976 to find a worse start to the year.2
  • Growth for the U.S. economy is being ratcheted down, with the Atlanta Federal Reserve recently lowering its forecast for second quarter GDP to zero growth, down from 1.9% just a month ago.
  • U.S. consumers have not been this pessimistic since 1978 (as measured by the University of Michigan’s Survey of Consumers).

The Long View

The economic and market stresses are real. Prices on the essentials — food, gas, and shelter — are reaching highs we have not seen in decades while a war rages in Eastern Europe compounding the pandemic supply chain woes and inflationary pressures. These are extremely challenging times, as such markets reflecting that reality make sense. With that said, when most investors are pessimistic and bearish, we need to compel ourselves to look for insights that support the opposite case: a reason to start becoming more optimistic.

If the S&P 500 ends up dropping more than 15% in Q2 2022, it will mark the ninth time since WWII it has experienced more than a 15% decline in one quarter. In the eight other occurrences, the S&P 500 averaged a 26% gain over the following year. Additionally, the S&P 500 was in positive territory over the next six months and the following year in every single one of the eight previous cycles. Similarly, historically when the S&P 500 has been down 20% over two quarters in a row, the S&P 500 has risen at least 22% during the next four quarters.3

Historically, if investors bought the S&P 500 exactly at the point when it hit bear market territory (keeping in mind markets can and have declined much further than 20% thereafter), they would have experienced average annualized gains of 22% over one-year periods, 14% over three-year periods, and approximately 13% over five- and 10-year periods. In other words, if investors had more than a one-year time horizon, they experienced better-than-average gains.4

If we are already in a recession (something we won’t know until after the fact), there may be a silver lining: equity markets tend to lead out of a recessionary bottom, perhaps making the recent downturn the beginning-of-the-end for this bear run (although bear market endings can be protracted). In other words, we may be better off if we are six months into a recession, since recessions can wash out excesses, restore the importance of investing based on fundamentals and serve our active exposures well.

Long-term inflation expectations, while higher than in recent years, remain reasonable. With the 10-year Treasury Inflation-Protected Securities (TIPS) reflecting an expectation of about 2.6% inflation, it appears inflation expectations have not become de-anchored yet and therefore offset the risk of stagflation.

Higher prices lead to lower prices as the former destroys demand. We are already seeing commodity prices start to level off or decline. Interestingly, energy stocks, which tend to presage the direction of oil and gas prices, are also in bear market territory (down over 20% from their recent highs). The Fed needs to be careful since inflationary pressures and higher yields are already doing a lot of the work the Fed intends to do.

What to Keep in Mind

Reviewing your portfolio balances too frequently may start testing your personal tolerance for risk — do your best to refrain from watching daily and weekly fluctuations. Embedded in those numbers is a lot of noise and irrational actions by some market players being driven by factors other than long-term fundamentals.

Markets could continue to decline to further depths in the short term. Unfortunately, how far they go, when they bottom, and when the reversal will occur are all unknowns. While bear markets can be severe and recessionary times difficult, we spend far more time in bull markets and non-recessionary economic periods. Historical data leads us to believe the odds are in favor of those who have longer than a one-year investment horizon, with the odds increasing in your favor as the timeframe extends to three years and beyond.

In the meantime, your well-diversified portfolio brings to bear different sources of risk and return, and even under these challenging circumstances continues to do its job weathering the storm.

Thank you for your continued trust in us. Please feel free to reach out to your Wetherby team or our investment team with any questions or concerns.

All my best,

Ron Albahary, CFA
Chief Investment Officer, Laird Norton Wealth Management

1 Rosenberg Research. “Breakfast with Dave.” June 20, 2022.
2 The Bespoke Report. “A Quarter From Hell.” June 17, 2022.
3 The Bespoke Report. “A Quarter From Hell.” June 17, 2022.
4 The Bespoke Report. “A Quarter From Hell.” June 17, 2022.


All content presented on the Wetherby Asset Management LLC (“Wetherby”) website is for informational purposes only and is from sources believed to be reliable. No warranty is either expressed or implied by its presentation.

This content is not, and should not be, considered a recommendation, offer, nor solicitation of an offer by Wetherby or its affiliates to buy, sell or hold any security or other financial product; nor is it an endorsement or affirmation of any specific investment strategy. Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Information contained in third-party articles was prepared by independent outside parties, and the accuracy of any such information may have changed since the article was published. Unless otherwise specified, opinions expressed reflect those of the author and not of Wetherby. Wetherby does not guarantee the accuracy or completeness of information in these articles and assumes no liability for damages resulting from or arising out of the use of such information. Should any specific funds or securities be mentioned in a third-party article, it may not be reflective of any funds or securities recommended by Wetherby, nor should it be considered an investment recommendation or investment advice. These investment strategies may or may not be appropriate to incorporate in our client portfolios. Wetherby’s analysis is subject to change as information develops regarding specific investment goals, profiles and/or the economic markets. Individual investments typically constitute a minority allocation within a client’s fully diversified portfolio managed by Wetherby.

Wetherby manages portfolios according to each client’s specific investment needs in accordance with a signed investment agreement. Therefore, each client’s portfolio has a unique set of circumstances and, consequently, investment results. Wetherby’s outlook may change if the client provides new information or if there are material changes in the market or investment recommendations. While Wetherby intends to add value to our clients in non-investment related areas of tax and financial planning, we do not hold ourselves out to be practicing income tax professionals or estate planning attorneys. You should consult your tax advisor and/or estate planning attorney for any legal or accounting needs.

To the extent that our website contains information about specific companies, securities and/or investment strategies – including whether they are profitable or not – it is provided only as a means of illustrating a potential investment thesis. It is not intended as a reflection of any securities or funds held by clients nor the experience of any client; the holdings and performance of which may be materially different from any investments discussed. It should not be assumed that any information contained serves as a substitute for, personalized investment advice from Wetherby or an investment agreement.

If a reader has questions regarding the applicability of this information to her/his situation, she/he is encouraged to consult with the professional advisor of her/his choosing. A copy of Wetherby’s current ADV Part 2 & 3 discussing our advisory services, fees and other relevant information is available upon request.



Wetherby’s status as both a Certified B Corporation® and a Certified San Francisco Green Business is indicative of our commitment to enhanced social, environmental and governance standards. It is not intended to represent Wetherby’s investment capabilities or performance. For additional details regarding Certified B Corporations® please visit www.bcorporation.net; for San Francisco Green Business please visit www.sfenvironment.org/green-businesses.

Social Media

Social media content involving Wetherby and our affiliated people is intended solely for informational purposes. It should not be considered as a recommendation, investment advice, nor an offer or solicitation of services. Links to third-party content are provided for convenience only; Wetherby cannot assure the accuracy or completeness of the information and no warranty is either expressed or implied by its presentation. Neither Wetherby nor our affiliated people are responsible for any third-party content, services, products or information. Please note that as a registered investment advisory firm with the U.S. Securities and Exchange Commission, Wetherby and our affiliated people are restricted from using any form of testimonial relating to our investment advisory services. We appreciate your acknowledgments; however, our policy requires that we hide any recommendations or endorsements.

Back to top