The Anatomy of Bear Markets

Hey, Tom here.

Thanks to everyone who attended this month’s Wealth Workshop on Leveraging the Tax Code. It was a great turnout with even better questions. Looking forward to next month’s Workshop.

This week, we’re diving into how bear markets work, as the Nasdaq inched closer to the territory.

Let’s get into it.

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Well, that was ugly.

I’m talking about Monday’s stock market drop.

The Nasdaq approached bear market territory.

Hopefully, this doesn’t faze you after reading last week’s edition. But this week, I want to help you understand how downturns like this start—and how they end.

This bout of volatility is still run-of-the-mill, similar to what we experienced in August of last year. But what’s different?

• Tariffs

• Cuts to federal spending

• Government funding issues

• Significant foreign policy changes.

This is dominating both the media and the markets, and I want to give you a different perspective so you can invest, plan, and make smarter decisions during times like these.

I’ve almost worn out this quote at this point, but it’s worth repeating:

There are a few foundational pieces of wisdom I hold onto as I oversee the $150M+ our clients have entrusted to us, and this is certainly one of them.

This quote is always in my head when the screens turn red.

We’re not in a bear market, and I’m not saying we’re headed for one, but it’s worth understanding what’s going on—and most importantly, how these things end.

This started like all market downturns: uncertainty.

Optimism turned into pessimism—all in a matter of weeks. Investors soured on what was being presented and started selling.

Are these investors running for the hills? No. They’re sitting in cash and buying bonds. Money markets hit a record high of $7 trillion last week.

Now, let’s talk about how this unfolds:

1. Market volatility often starts unexpectedly – I wrote about this three weeks ago.

2. Things get ugly – Down days get bigger, and the coinciding up days get bigger. Monday was ugly.

3. Downturns end with capitulation – Investors throw out all logic and sell indiscriminately.

4. The sellers finish selling – Buyers storm back in, scooping up the mess at great prices, marking the “bottom.”

I’ve been doing this a long time, and sell-offs are always uncomfortable. Yet, they follow the same process time and time again.

Markets, as a reminder, are a collection of humans prone to making irrational, bad, short-sited decisions—kind of like the recent Luka Dončić trade to the Lakers.

Sorry, Mavs fans. Truly.

While the media fixates on the sell-off, remember: for every seller, there has to be a buyer.

Let me illustrate the reality of this situation with analogy.

Imagine walking into a grocery store.

Instead of neatly organized aisles, you see piles and piles of soup cans everywhere.

You think, “That’s odd. Why are there so many soup cans?”

Odd, right? You walk over and see people grabbing them by the armful. Then you notice a small sign taped to the shelf:

“Soup—10 cents a can.”

“Wow, that’s a great deal,” you think. “These are normally $2 each—I should grab twenty of them.”

You fill your cart and head to checkout. Curious, you ask the cashier why there were so many cans.

He explains, “The supplier had way too much inventory, so we marked them down to clear them out. They’ll probably be gone by the end of the week.”

You nod, glad you were there to get a great deal, and walk out.

Now, let me break down the cast of characters:

• The soup supplier = Investors selling U.S. growth stocks

• The soup cans = U.S. large-cap growth stocks

• The shopper = A wise investor buying at a discount

• The little sign = Stock prices

• The cashier = The stock exchange

Not everything in the grocery store was on sale—only the overstocked soup. The same goes for the markets. While some areas are getting hit hard, value stocks are holding up, international stocks are performing well, bonds remain strong, and cash is cash.

Check this chart out.

Interesting isn’t it, and in times like these, your defensive assets shine and diversification is king.

Let me leave you with a quote from Buffett:

And another from legendary investor Peter Lynch:

So, what now?

This is where patience pays off. Market cycles don’t last forever—what feels like chaos today will eventually be seen as an opportunity in hindsight.

The key? Making smart, steady moves while others react emotionally.

These moments create opportunities.

The question is: Will you take advantage of them?

Two things for you this week:

• Do One Proactive Thing This Week – Markets are volatile, but great investors don’t sit still. Review your portfolio, rebalance if needed, call you advisor or make an extra contribution. Small, consistent actions lead to big results over time.

• Invest With Us – Our full-service wealth management is built to optimize every aspect of your financial life—from asset management and tax strategy to estate planning and philanthropy. As fiduciaries, we act solely in your best interest, ensuring your wealth is positioned for long-term success. If you have $500,000+ in investable assets and want a team that stands by your side through every market cycle and life transition, let’s talk.

With you in good times and bad,

Tom