Broker Check
Market Capitulation

Market Capitulation

June 16, 2022

What is Capitulation? 

According to Investopedia, capitulation is defined as “the dramatic surge of selling pressure in a declining market or security that marks a mass surrender by investors. The resulting dramatic drop in market prices can mark the end of a decline, since those who didn't sell during a panic are unlikely to do so soon after.” In our case today, it is economic conditions that allows the market to find a bottom. As you are aware, the market has had a rough first half of 2022. It is very common to have two or three pullbacks each year (0-10% down), one to two corrections (10-20% down) and occasionally a recession which is defined as a drop of 20% or more. It usually takes a perfect storm of events to create a recession. The reasons for the recent market sell-off has been a perfect storm of events such as supply chain issues, energy policy (or lack thereof), federal monetary policy, the Ukraine-Russian war, labor shortages, inflation, and last but certainly not least, a slow response to economic conditions by the Federal Reserve. The perfect storm for why this country is where it is today. Have we reached the bottom or capitulation? There are some that say we have and others saying we have another 5-10% to the downside before we get there.

Here is the report card for the year so far. On average, the S&P, DOW, Russell, and NASDAQ as of yesterday show the market down 21.49% year to date. No one likes investment declines at any time but that is the nature of the market. It takes down markets to reprice stocks so there is good money to be earned in up markets. According to Legg Mason, Inc., now owned by Franklin Templeton Investments, since 1937 the market is up 76% of the time. The average return in the up years is 19.4%.  Times like these are not fun to experience but they are part of the ride. Very few investments have outperformed the stock market going back to 1937. 

Furthermore, those who are investing monthly should remember that when the market is down like we see now, everything is on sale. You are purchasing equites that are greatly reduced in price which means you are purchasing more shares for your money. When the market turns around, and history shows that it always has, owning more shares is going to benefit you in the long run. Don’t become alarmed. This is all part of being an investor. After all, if the market was always up, there would be many that could not participate in the ownership of companies. In my opinion, the market is oversold and ready to reprice soon, which would indicate recapitulation. From this point forward there is usually good money to be earned until the cycle repeats itself and another repricing is necessary.

I have a tremendous amount of confidence in the way we read and handle cycles in the market regardless of whether the market is up or down. We are monitoring our client accounts daily and managing portfolio allocations according to established risk tolerances. Thank you for your continued trust and confidence in us. Over the long haul, we will not disappoint you!

DISCLAIMER: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of Global View Capital Advisors. LTD (GVCA) or any of its affiliates. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.