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The S&P 500 officially enters a bear market: Beat or Run?
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How to survive in a bear market

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To the Moo joined discussion · Jun 15, 2022 04:04
It's hard to say how predictable the market has been after its recent roller coaster ride.

Stocks mostly continued their slide on Tuesday, a day after the $S&P 500 index(.SPX.US)$closed in a bear market for the first time since 2020.
"The mood's bad," said Michael Mullaney, director of global markets research at Boston Partners. "History does not bode well for the market when it goes down into bear-market territory."
In previous bear markets since World War II, the S&P 500 has fallen a further 12.4 percentage points on average from the date the 20% mark was breached, Mr. Mullaney's data shows.
How to survive in a bear market
Is the bear market near its bottom?

Some investors got caught up in dumping all their holdings, while others stuck to their dip-buying strategy. Being a risk-taker or risk-averse investor is a personal appetite that will cause market divergence and volatility.
"We're finally getting to that point where everything is for sale, regardless of the quality of earnings. And that typically is what happens toward the end of a selloff, not the beginning," said Art Hogan, chief market strategist at National Securities.
"When you see this type of broad-based selling across every single sector, asset class, crypto, the future of technology, the quality darlings, that tells me that we are likely closer to a bottom than we are to an additional major correction," said Sylvia Jablonski, co-founder of Defiance ETFs according to an article published by Bloomberg.
How to survive in a bear market
How to find potential opportunities in a bear market?

A rising market underlies risks, while a falling market brings opportunities. Every stock market crash could signal a potential entry opportunity, whether it's a panic selling at the end of a bear market or a sharp pullback amid a bull market.
When panic prevails and stock prices fall precipitously, savvy investors attempt to benefit from the rebound via lapping up quality stocks.

What kinds of stocks are considered quality?

Generally speaking, good stocks include but are not limited to three types.

1. Growth companies in fast-growing industries：

Top-quality stocks in high-growth industries are generally the leading companies. These companies grow faster in revenue than the industry and have a considerable market share and great earnings prospects even if they are not necessarily profitable now.
For example, in the new energy vehicle industry and the power battery industry, there are companies that have grown from small companies to global giants, such as $Tesla (TSLA.US)$ and the lithium battery leader $Contemporary Amperex Technology (300750.SZ)$ .
2. Cash cows in steady industries

For example, $Microsoft (MSFT.US)$ is experiencing slower growth as the computer industry enters maturity. Nonetheless, it still has enough profit and cash flow to tap into the cloud service business to restart growth. Take $Apple (AAPL.US)$ as another example. The cell phone industry is also entering maturity, and Apple has limited growth potential. However, as a cash cow, it still retains the possibility of entering the new energy car and VR industry.
China's $Kweichow Moutai (600519.SH)$ could be another case in point. Despite the difficulty of having significant growth, its deep economic moat, high-profit margins, and cash flow still make it a good company in the eyes of investors.
3. Highly prosperous companies in cyclical industries
Resource-based companies generally dominate cyclical stocks, such as oil, natural gas, coal, and steel. Take their performance in recent years to illustrate. These industries were hit hard at the beginning of the Covid-19 pandemic. For example, crude oil prices once collapsed into negative territory, but then climbed fairly high, driving up the prices of other resources. Cyclical stocks also ushered in a high boom cycle.
Leading companies in these industries are usually characterized by their massive scale and advanced production technology. Thus, they enjoy a great cost advantage that enables them to make no or fewer losses during an industry downturn, while making the most profits during an industry upturn. Investors also pay more attention to this kind of company. However, when investing in cyclical stocks, it is vital to keep an eye on the inflection point of the cycle so as to control the risk.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more
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