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behavioral

ADVISOR

Research and data-driven behavioral insights to guide client conversations.
February 2, 2024
Research shows that US investors expect real annual investment returns of more than double what financial professionals expect. In the short run, this is a recipe for unhappy investors as short-term returns rarely meet expectations. Eventually, this gap leads to even greater misalignment and deep dissatisfaction.

Do Markets Predict Recessions?

November 10, 2023
”The Stock Market has forecasted 9 out the last 5 recessions!” Nobel Prize Economist Paul Samuelson quipped in 1982. It turns out that the stock market is an unreliable predictor of recessions, as Samuelson so cleverly put it. A recent update confirms the stock market has a bit better than 50/50 prediction record, reporting that it has now predicted 13 out of the last 7 recessions! Was the recent market decline from January to October of 2022 another false signal?

Do Fees Help Identify Good Managers?

June 24, 2023
Mutual fund investors tend to focus on fees in order to find active equity managers that can outperform over the long run. While it is true that higher fees lead to lower performance on average, the data indicate you have an above-average chance of selecting an outperforming manager by simply picking from funds that have an annual expense ratio less than 1.5%.

A Different Kind of Bear

March 19, 2023
The last couple of years have been very unusual. 2020 was one of the most volatile markets in recent history but the S&P 500 Price Index finished with a positive return roughly double its annual average. 2022 was just the opposite. While there was little evidence of investor panic typical of Bear Markets, stocks significantly declined in value with the S&P 500 finishing the year down 19.4%.

How Long do Bear Markets Last?

December 7, 2022
The current Bear Market, defined as a loss of 20% or more from an all-time high, has lasted 11 months so far. But did the market hit its low point at -25% on October 13, or will there be more declines to come? While every Bear Market is different, history can provide some perspective on where we are now. The median duration of the decline for the 11 Bear Markets charted below is 15 months while the median loss is 34%.

Bear Market Rally or New Bull Market?

August 22, 2022
Investors wonder about the current bear market and want to know if we are “out of the woods” or if there is “more pain to come”. The graphic below shows that the stronger the rally, the higher the probability that the bear market will end. After a 17.4% rally from the June S&P 500 lows, there is a low probability (3.6%) that the current rally will fail. However, if it does fail, the historical average decline from these levels to the ultimate bear market low would be 31% and take seven months.