Bear market rally

A “bear market rally” is a temporary bounce in equity markets during an ongoing downwards trend. We saw this happen in August, when markets erased almost half of its year-to-date losses and we were all happy for a while. Unfortunately, this bounce did not last long and we saw markets drop again as we entered our South African spring. The reason for this renewed slump is, of course, the inflationary fears and the confirmation by Jay Powell to keep on increasing interest rates in the USA. One of the main culprits for this inflationary pressure is, obviously, the high oil prices. The good news is that oil prices are coming down and if the price breaks through some key levels it might go all the way down to $60 a barrel (see graph). Unfortunately, Europe and the States are now heading into winter, which will put renewed upward pressure on the oil price.

Historically, one of the best hedges against inflation was gold. Unfortunately we have not seen this protection coming from gold recently. As a matter of fact, gold- and silver-mining companies have been giving you nothing as an investor over the last 40 years, but have provided the traders with plenty of volatility instead (see graph).

Getting back to the bear market we find ourselves in at the moment, there is some solace in the fact that over the last 90 years, positive (bull) market cycles have always lasted longer and been stronger than the negative or bear market cycles (see graph).


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