Stock Market Cycles


When investing, it is important to be able to understand stock market cycles in order to help make informed market forecasts. However, this understanding can require research, insight and industry experience—things the lay investor may not already have. Fisher Investments Canada has used its portfolio management expertise and industry experience to identify the three main drivers which, it believes, drives ongoing market performance: economics, politics and investor sentiment.

  • Economic drivers: Our extensive Research Department pays close attention to important economic releases, such as the bank profitability, corporate earnings and much more. These economic fundamentals help inform the decisions of our Investment Policy Committee—the five-member group responsible for overarching themes in client portfolios. 
  • Political drivers: Politics can play a large role in the stock market cycle. When evaluating different countries and regions, we consider factors, such as trade/capital barriers, government stability and potential regulatory risks.
  • Sentiment drivers: Understanding how investors and the financial media feel about the equity market we believe is key to our ongoing market forecast. Sentiment is difficult to measure, but we look at many sources, including professional forecasts, media headlines and the initial public offering market—how many companies are going public at a certain point in time. These sources can provide a rough idea for where we may be within a given stock market cycle.

Understanding Stock Market Cycles

If you’re like some investors, you may need to invest in equities to meet your long-term investing goals. If so, you may have trouble staying disciplined in the face of market uncertainty and short-term volatility. This task may not be easy when your retirement depends on the performance of your portfolio, so it's little wonder that panic or excitement can be induced by every minor event in the stock market cycle.

Panic selling at times of short-term negative volatility or chasing growth during phases when a particular equity style or sector is 'hot' can be dangerous reactions and may heavily detract from your long-term portfolio returns. Similarly, trying to be a "market timer," by attempting to buy low and sell high at just the right points in the market cycle can prove to be a feckless exercise and could inhibit your ability to reach your long-term goals.

Fisher Investments Canada believes investor education is the best way to help investors to stay disciplined during the inevitable anxieties and excitements of equity market trading. This includes understanding how to identify the different stages within a stock market cycle and the key factors driving them.

Bull Markets and Bear Markets

You may have heard the terms "bull market" and "bear market", but not everyone knows their meaning. The term "bull market" is used to describe sustained periods in which equity prices are rising. As a bull market progresses, investors slowly gain confidence in the market. This progression can lead to misplaced 'bullish' confidence or optimism in a particular security style, sector or region. It may even lead to euphoria—when exuberant investors set overly high expectations, bid equities up accordingly and dismiss weakening underlying fundamentals.

This contrasts with the term "bear market", which is used to describe a period when the equity markets are in a sustained decline—normally in excess of 20% from their peak. During bear periods, some investors panic and worry, which can make people react emotionally and sell securities to try to limit their losses. This emotional reaction may feel right in the moment, but it often deviates from their long-term investing strategy and can set them back significantly if they miss the subsequent rebound.

We believe it is important to help clients stay disciplined through the emotional peaks and troughs of stock market cycles, focusing on following their long-term investment strategy. That’s why our service model is built on providing high-touch client service and client education.

Walls, Wallops and Corrections

We believe there are two ways a bear market starts: The Wall and The Wallop. The Wall—a short name for our term the 'wall of worry'—refers to the many worries, current events and market volatility investors encounter during a bull market cycle. As long as investors are still fearful, the bull market should keep charging on, but when investors become euphoric, it could be a sign that a bear market is near. On the other hand, the Wallop refers to a big, bad surprise that has the strength to knock several trillion dollars off global GDP, against all expectation and indicators. Some examples of potential wallops include world wars, regulatory changes and extreme changes to global money supply.

Media outlets report “scary” events almost daily—particularly in the current age of constant digital news. These scary headlines and investor fears help form the 'wall of worry' during bull markets, and some of these fears can even turn into bull market corrections: short, sentiment-based market drops of roughly 10% to 20%. They may have no fundamental cause other than general market sentiment and are nearly impossible to time consistently.

Some investors trying to side step bull market corrections simply end up hurting their long-term returns—selling after most of the fear-based drop is past and missing the rebound. This kind of emotional and misinformed trading is just one reason a good financial adviser may be able to help you towards your long-term investing goals and objectives.

How Fisher Investments Canada can help

We have helped educate investors about stock market cycles and ways to achieve their long-term goals for years. Learn more by downloading one of our educational investing guides or by contacting one of our experienced professionals today.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns.