It's a bear: we know him (and we know how to deal with him)

After the last wave of sales, we have technically entered a "bear" market, so defined when the S & P's 500 records a drop of more than 20% compared to the peak. It is the first "bear" since 2007 and marks the end of one of the longest "bull" markets in history.


In 2018, between 20 September and 24 December, we had come very close with the S & P's 500 which fell by 19.4%. Then, on Boxing Day, a new rally had started that led the index to another historic high (April 12, 2019).


Simplify 02's balanced portfolio is holding up well, better than it did in 2018, without changing the active search for investment opportunities. Of course, the market panic seems greater, as evidenced by the volatility index of the S&P 500, 80% higher than the peak reached in that period.


This, in large part, is due to the greater strength of the contemporary bond rally: the prices of long-term Treasury securities (over 25 years) have increased by 8.8% in the 22 days since the last record of the S & P's 500 against the 4.5% in the 95 sales days of 2018.


Although the 20% drop that marks the entry into the "bear" market is arbitrary, it represents an important dividing line between corrections that require a few months to recover and those that require years instead.


The analysis of "bears" after the Second World War highlights that some are shorter and less severe. A cautious forecast indicates the next historic high of the American stock exchange in May 2023, 39 months after the highs of February 2020. If so, we would expect balanced portfolios, less penalized by the declines of these weeks, to recover the losses about a year earlier. Furthermore, considering the annual yield on bonds, we expect low-risk portfolios to approach their all-time highs faster.


The "bears" certainly represent a challenge (for those approaching retirement) and an opportunity (for the younger ones) but, regardless of age, they offer investment opportunities.


Simplify 02, in this scenario, has a great advantage over benchmark management: it can quickly liquidate investments (in alignment with long and short term fundamentals) and promptly reinvest to take advantage of the start of a new trend.


The intervention of governments (suggested, for a long time, by Mario Draghi) was today imposed by Christine Lagarde, president of the European Central Bank: the ECB, he said, must pursue its objectives and cannot replace governments, and has thus fueled the wave of sales by effectively opening an institutional conflict.


When will it be possible to return to investing in equities? China and South Korea appear to be suitable markets because the recovery will start from there. As for the American stock exchange, a forecast on the fall in profits of the S & P's 500 indicates a level of 3,000 points as fair value, but to have a good entry moment, it will be necessary to wait for 2,250 / 2,300. For Europe and peripheral countries in particular, an evaluation is still premature.


At the moment the Simplify 02 portfolio is weighed down by the volatility of gold which, however, in our opinion, remains a good investment in view of future US monetary policies.


We are at your disposal to analyze in detail the variables related to investments in these particular contexts.




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Simplify is an AIF umbrella fund, is authorised by CSSF in Luxembourg and passported in Italy and Sweden. The fund is managed in London.