by Rick Ackerman
Investors who think the worst is over had better prepare for the other shoe to drop. Stocks rallied sharply last week, reflecting the egregious miscalculation not only of bulls who have yet to meet a dip they did not like, but also of bears who evidently fear that the crazed buying binge will continue for no good reason. They should relax, since there has never been an instance where an initial drop of 30% in the stock market did not take at least another six months to bottom.
Another reason why bears shouldn’t panic to get ’em back is that in bear markets, shares tend to fall by as much as earnings. Assuming that the bottom line is halved over the next six to nine months for S&P 500 companies — a very conservative estimate, considering the number of businesses that are either headed into bankruptcy or shuttered indefinitely — the S&P 500 should eventually fall to at least 1700. That is miles below the current 2789, and 22% lower than the March 23 crash-landing bottom.