As stocks continue to slide, here’s how to invest in this bear market

Stocks in almost half of the sectors within the Dow Jones index are languishing in a bear market. Bank of America and Morgan Stanley say the worst is far from over. Here’s how to navigate the downturn.

Almost half of the sectors within the Dow Jones index that track US stocks have now fallen more than 20% from the peak of the past year, meeting the common definition of a bear market. Two of those sectors still afloat are just hanging by a thread.
Fears that persistently high inflation and rising interest rates will push the economy into a recession are fueling a massive selloff. While markets managed to recoup some of the losses Tuesday, that may not be enough to halt the downtrend. Both Bank of America and Morgan Stanley predict the worst is far from over. That’s not saying you should move all your assets to cash and hide them under your mattress until the bear market ends. Read on to find out how to navigate the downturn.

How long does a bear market last?

The past 19 bear markets lasted an average of 289 days, with prices slumping about 37% from the peak, according to Bank of America Global Research Chief Investment Strategist Michael Hartnett. If history were to repeat itself, the current one will likely end in October, he said in a note last week.
Many badly beaten stocks are already nearing that threshold, if not past it. The communications services index has sustained the worst hit among the sectors on the S&P 500 index, having slumped by more than 30% from its peak in September.
The gauge includes Facebook’s parent company Meta Platforms (FB), which has lost almost half of its value since trading at a record last year.
The S&P’s consumer discretionary index, which counts Amazon (AMZN) as its biggest constituent, has tumbled 30.4% from its peak, well past the bear market threshold. The online retail giant has slumped 42% from an all-time high, pulled down by losses in the value of its investment in Rivian Automotive (RIVN).

Four of the 14 sectors under the S&P 500 index have fallen more than 20% from their peak in the past year, meeting the common definition of a bear market.
In the Dow Jones index, banks, consumer services, financial services, semiconductors, technology and transportation have all plunged more than a fifth. Real estate and industrials are teetering in bear market, having lost more than 18%.

How to invest in a bear market?

Experts suggest that investors rebalance their portfolio, focusing more on specific companies that generate profit even in periods of economic downturn. To Denise Chrisholm, a director of quantitative market strategy at Fidelity Management & Research, the recent slump has made healthcare and financials appealing.
Strong fundamentals behind consumer discretionary companies “may help the sector overcome high valuations,” Chisholm said in a note last week. “Energy and industrials also continue to look attractive.”
Healthcare stocks are also Bank of America’s top sector overweight, having consistently outperformed in both late cycle and downturns, Hartnett said.
“Health Care gives investors defense, growth and yield at a reasonable price, with the sector trading at a near-record discount to the S&P 500,” Bank of America’s U.S. Equity and Quantitative Strategist Savita Subramanian said.
Investors should expect continued wild swings in stocks as the market reprices the odds of slower economic growth, persistent inflation and tighter monetary conditions, Nuveen Chief Investment Officer Saira Malik said in a note Monday.
Macroeconomic headwinds continue to build, dousing hopes of a sustainable rebound in the stock market. “As financial conditions tighten, a strong but slowing economy is unlikely to be enough to power substantial passive index gains from here,” Lisa Shalett, a chief investment officer at Morgan Stanley Wealth Management, said in a note in late April.

How to protect your investment in a bear market

A research by Charles Schwab showed the cost of waiting
for the perfect moment to invest typically exceeds the benefit of even perfect timing.
Charles Schwab Chief Investment Strategist Liz Ann Sonders and Senior Investment Research Specialist Kevin Gordon believe investors should focus on quality stocks, as they navigate the market downturn.
“It is a time for investors to employ traditional disciplines around diversification (across and within asset classes), to focus on quality in terms of stocks’ fundamentals, and to stay in gear via periodic rebalancing,” they said. At the time of this publication, Luzi Ann Javier owned shares in Amazon and Meta.

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