Essence of the markets is to go up and down

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The world economy and stock markets are facing an enormous challenge, the greatest in more than seventy years. Let's look at the bad news first, and then what the good news is and why it is more important than the bad, despite the current situation.

The essence of the markets is to go up and down… to end up going up. It is perfectly normal to see drops of more than 10% and, in some cases, even more than 20%. In the extreme, when there is a recession in the economy, the drop can exceed 40%.

This is the context in which we have been since the beginning of 2022, with a Nasdaq that accumulates a drop of 32% and the SP500 23%. We are therefore facing a bear market, not a crisis of short duration and low intensity that can be salvaged in a matter of months. We are simply watching prices decline.

Since 1948, there have been four falls of more than 30% on the main world stock market: in 1970, 1975, 2001 and 2009. If we set the bar lower, at 20%, then we can add the corrections of 1948, 1957, 1981 and 1991, which were all less than that figure.