Skip Navigation

12.20.22  |  Investment Management

No Capitulation

Download PDF

In our experience with bear markets, which is more extensive than I would like to admit, markets usually have a way of finally finding an ultimate bottom in an atmosphere of despair. At that point, market rallies are greeted with broad skepticism from investors as they have been wounded from prior failed attempts higher. Oftentimes the final decline is fairly spectacular (post Enron – 2002, post Lehman – 2008, mid Covid – 2020), marked by broad based selling as fund managers are forced to sell anything remotely liquid to meet redemptions. During these capitulation events, stocks trade at cycle low valuations, credit spreads (premiums paid for riskier loans) widen dramatically and the VIX index (“Fear gauge” measuring S&P 500 option volatility) spikes over 40 (see chart below).  None of these things have happened this time around.

CBOE Volatility Index 
(Source: FactSet)

There is no rule that capitulation must occur, and this time it very well may not.  In fact, maybe it is a bullish factor that the markets have been so robust that they have not capitulated.  After all, we had the fastest bear market ever during Covid, the biggest stimulus ever, the quickest recovery ever, the fastest onslaught of inflation ever, and the fastest Fed rate tightening cycle ever.  Why stop now, and usher in the fastest breaking of inflation ever along with the soonest Fed pivot to cutting rates ever? 

Important Disclosure Information:

Sources include eSignal.com, Bureau of Economic Analysis, Bureau of Labor Statistics and FactSet. Not a substitute for tax or legal advice.

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Grimes & Company, Inc. [“Grimes”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Grimes. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Grimes is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Grimes’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.grimesco.com. Please Note: Grimes does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Grimes’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Grimes client, please contact Grimes, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian. Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your Grimes account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Grimes accounts; and, (3) a description of each comparative benchmark/index is available upon request.

What is the Bond Market Telling Us Right Now?…That Depends…

Stay Connected

Fill out the form below to receive our quarterly newsletter! Sign Up

Newsletter Sign Up

Sign up for our periodic email newsletter, distributed via Emma email marketing.