Imagine a bear starting to wake up after a period of hibernation. Though I have never been there when the event occurred, I can only imagine that they may wake up the first time and look around and then push the proverbial snooze button for a little more shut-eye. In our opinion, that is what happened on this Tuesday, which was the first trading day of the third quarter.

Unlike a recession where there is no clear-cut and absolute definition of the event technically occurring, there are definite measurements of a bear market. When a market (an index like the Dow Jones Industrial Average or the S&P 500) drops by 20 percent or more from the high point, then Wall Street confirms the prestigious title of a bear market. The bear reared its head on Tuesday afternoon as both the DOW and the S&P500 slipped into bear territory momentarily before a huge rally in both indices took the market higher at the close of the day.

The bear market confirmation is much like a formal event where everyone already knows who gets the award. In this case, some will argue we are in bear territory because we hit the number intraday and others will say we are not because we didn’t close at the required 20 percent drop. Regardless, the markets have been ugly since October last year, and in truth the broader market actually peaked last June. By broader we are referring to the number of individual companies making new highs rather than the index. Because the S&P 500 is capital weighted, where larger companies have more representation in the index, it is possible for more companies to go down in value than up and still have the index move higher. The reverse is also true.

There have been exhaustive studies on where you should invest during different economic periods. The bull versus the bear market is no different. Pundits from everywhere come out touting their research as to where money should go right now. We are not only obligated to read many of them, but to also write our own! What this column shall focus on is what has actually happened since 1940. The research yielded some surprising results.

Typically, investment wisdom states when a market starts to pull back — and assuming you believe that you are in period where the market will eventually hit bear status — you should shift money to consumer staples and health care. For the record, this is not what we did during this current market downturn, but it is the conventional wisdom. Sure enough, the research shows these areas tend to lose less than the rest of the market during the fall from the top of the market to the declared bear status. What is surprising — at least on the surface — is that after the 20 percent decline is in place, history suggests that you should exit the positions of presumable safety and move to very interesting areas.

Our friends at Bespoke ran the numbers back to 1940 and found that during the period where you move from bull to bear — the first 20 percent drop — you should then re-position your holdings toward industrials, utilities, and telecom. This doesn’t represent our current allocation in entirety, but there are some similarities in our thoughts and what history says works.

This is common sense if you think about it. The market sells off by definition — usually dragging all or at least most of the sectors of the market with it — and the staples and health care lose the least. After the bear is declared these stocks don’t rebound in most cases — in fact they sit still or even go down — while the sectors that were the most decimated begin to move upward.

Assuming the economy stays in a soft spot — not an economic certainty — it is very likely in our opinion that we will see some stimulus package presented that will speed up infrastructure spending around the country. Industrial stocks should perform in that environment, at least in terms of increasing earnings. Even if the economy doesn’t slow from here but actually picks up, then we would also see the industrials in a good economic position.

The utilities have actually done OK lately. In a time of energy confusion and consternation, but with huge market gains, it makes some sense that utilities would follow along. Pay attention to the third quarter to see if the trend continues for utilities. Remember that the trend is your investment friend in most cases. For the record, we are long utilities, but via foreign exposure.

Interestingly enough, several analysts upgraded the telecommunications sector as soon as the market closed the last day of June. Our allocation team has maintained that we would indeed give up many of life’s pleasures before we would give up our cell phones! This seems like a reasonable thought looking at how far the sector is down this year.

Keep in mind that these are far from investment recommendations. In fact, we pride ourselves more on the ability to react to change than the ability to call the markets right into the future. In this period of changing times the ability to react will be more important than the ability to predict. What you need to do with your money has to be based on your individual needs and objectives. For the record, past performance is not indicative of future results. Just because this worked the best on average since the 1940s doesn’t mean that it will work this time.

The more you can learn about how things have worked in the past the better handle you can get on the future in our opinion. This is not because you can copy past performance, but because it makes you think and get more in tune with the economy and the market today. For the time being the bear has nodded off for some more shut-eye. That can change at anytime as we are in very interesting times. Be careful out there.

Joseph “Big Joe” Clark is a certified financial planner and managing partner of the Financial Enhancement Group, LLC. Securities and Investment Advisory Services offered through World Equity Group, member NASD/SIPC. Clark can be reached at bigjoe@yourlifeafterwork.com, or (765) 640-1524.