Filed Under: Business

Is capitulation coming? Investors look for final bear market selloff

By , ,

The stock market has seen some wild swings in the bear market of 2022. The S&P 500 had its worst start to the year since 1970, dropping 21% the first six months. Since entering a bear market in early June, investors have been waiting for a sign the downturn is over.

That sign is capitulation, which literally means to surrender. So what does it mean in the finance world?

Definition

Capitulation is the moment a significant number of investors throw in the towel and sell stock at a loss.

It’s a panic sell, and it comes when investors fear a stock or entire market will plunge even deeper. Capitulation, then, becomes sort of a self-fulfilling prophecy brought on by a high amount of trading volume that tanks a stock or market.

How to identify capitulation

It’s hard to know for certain while capitulation is happening as bear markets come with many dramatic swings. A definitive capitulation moment is better identified in hindsight, after the price hits bottom for good and rebounds.

That’s the point where the price plunge is so deep, it shakes out all of the investors who are likely to cut and run. That just leaves buyers in the space who then drive up the price.

The waiting game

Caused by the onset of the pandemic, the last bear market in March 2020 lasted only one month, though losses were steep. Before that, the stock market had experienced an unprecedented period of growth following the Great Recession, which means investors have experienced very little downturn since 2009.

In 2022, investors and analysts are eager to identify that moment of capitulation which often signifies the end of the bear market.

What financial term do you want explained in our next Word On The Street? Comment with your suggestion. 

NEWS CLIP: do you sense any kind of capitulation, if we’re asking the question are we nearly there yet, are we? 

SIMONE DEL ROSARIO: IT’S THE MOMENT WE ALL WAIT FOR IN A BEAR MARKET.

NEWS CLIP: is this the big sell off that you’re talking about, what’s it called, a capitulation sell, is this it?

SIMONE DEL ROSARIO: CAPITULATION LITERALLY MEANS SURRENDER. SO WHAT DOES IT MEAN IN THE FINANCE WORLD? THAT’S TODAY’S WORD ON THE STREET.

CAPITULATION IS THE MOMENT A SIGNIFICANT NUMBER OF INVESTORS THROW IN THE TOWEL AND SELL STOCK AT A LOSS.

IT’S A PANIC SELL, AND IT COMES WHEN INVESTORS FEAR A STOCK OR ENTIRE MARKET WILL PLUNGE EVEN DEEPER. CAPITULATION, THEN, BECOMES SORT OF A SELF FULFILLING PROPHECY. 

NEWS CLIP: right now we haven’t seen that sort of get me out moment. we’ve had customers continually buying the whole way down which means there is no capitulation yet. 

SIMONE DEL ROSARIO: IT’S HARD TO KNOW FOR CERTAIN WHILE IT’S HAPPENING. BEAR MARKETS COME WITH MANY DRAMATIC SWINGS. 

NEWS CLIP: so you say perhaps that was a capitulation but not the capitulation. 

SIMONE DEL ROSARIO: THE CAPITULATION IS BETTER IDENTIFIED IN HINDSIGHT, AFTER THE PRICE HITS BOTTOM FOR GOOD AND REBOUNDS.

THAT’S THE POINT WHERE THE PRICE PLUNGE IS SO DEEP IT SHAKES OUT ALL OF THE INVESTORS WHO ARE LIKELY TO CUT AND RUN. AND THAT JUST LEAVES BUYERS, WHO THEN DRIVE UP THE PRICE.

NOW THAT YOU KNOW WHAT CAPITULATION MEANS, WHAT FINANCIAL TERM DO YOU WANT EXPLAINED NEXT IN WORD ON THE STREET? LET ME KNOW IN THE COMMENTS BELOW.

The stock market has seen some wild swings in the bear market of 2022. The S&P 500 had its worst start to the year since 1970, dropping 21% the first six months. Since entering a bear market in early June, investors have been waiting for a sign the downturn is over.

That sign is capitulation, which literally means to surrender. So what does it mean in the finance world?

Definition

Capitulation is the moment a significant number of investors throw in the towel and sell stock at a loss.

It’s a panic sell, and it comes when investors fear a stock or entire market will plunge even deeper. Capitulation, then, becomes sort of a self-fulfilling prophecy brought on by a high amount of trading volume that tanks a stock or market.

How to identify capitulation

It’s hard to know for certain while capitulation is happening as bear markets come with many dramatic swings. A definitive capitulation moment is better identified in hindsight, after the price hits bottom for good and rebounds.

That’s the point where the price plunge is so deep, it shakes out all of the investors who are likely to cut and run. That just leaves buyers in the space who then drive up the price.

The waiting game

Caused by the onset of the pandemic, the last bear market in March 2020 lasted only one month, though losses were steep. Before that, the stock market had experienced an unprecedented period of growth following the Great Recession, which means investors have experienced very little downturn since 2009.

In 2022, investors and analysts are eager to identify that moment of capitulation which often signifies the end of the bear market.

What financial term do you want explained in our next Word On The Street? Comment with your suggestion. 

Recent Reports


Get unbiased straight facts, context, and perspective!