Capital Ideas^TM

Over long periods of time, there are two different types of bear market, those that are associated with a recession and those that are not, and the former are much rarer. When recessionary bear markets do happen, they tend to be about twice as long and go much deeper than those not associated with a recession.

If you map the course of these recessionary bear markets, they're incredibly similar in both their duration and form and seem to match well with what's going on in the markets right now. The good news is that there are no systemically broad market risks with this bear market, compared to the risks posed by collateralised mortgage vehicles during the GFC (the last time we had a bear market associated with a recession). I believe we will come out the other side of this bear market stronger and better for it having cleared up those excesses in the global economy.

Looking forward: who will lead us out of the bear market?

A key message from the last few bear markets is the sectors that led into the bull market were almost never the ones that led us out. If we consider the FAANGs, which had been particularly strong, will they be the ones to lead us out of the market?

I don’t necessarily think they are going to be the worst sector, but it's very rare that the big leaders going in are the strongest coming out. So where should we be looking for that for that next leadership group? 

In this article, vice chair and president of Capital Group Rob Lovelace compares today’s bear market with those in the past and explores which companies could be the next equity market leaders.

 

Risk factors you should consider before investing:

• This material is not intended to provide investment advice or be considered a personal recommendation.
• The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
• Past results are not a guide to future results.
•  If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful. 
• Depending on the strategy, risks may be associated with investing in fixed income derivatives, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.