The recent stock market carnage simply has one underlying but painful explanation after adding up the multiple reasons behind it. It’s a bear market.

This does not necessarily mean that the aging bull market of almost 10 years has come to an absolute end. It also doesn’t mean that the indexes will not return to new all-time highs in 2019 or beyond. There are many instances when there are bear markets within long-term bull markets. After all, stock market indexes have an entire history in which the most likely outcome is that the major indexes will rise over time. That doesn’t make the pain of short-term losses feel any better while a bear market is unfolding.

Wall Street and Main Street sometimes do not see eye to eye. During bear markets, there is a “go-to” source of blame by Main Street — that’s to blame Wall Street. After all, most of the public knows very little about short selling, buying or selling options, and what “going long volatility” really means. And by the time the public figures it out, it’s either too late, too costly to transact or just feels too expensive on the surface.

24/7 Wall St. covers many analyst calls each day of the week. These are generally variations of Buy, Sell or Hold ratings. While the effort is intended to help investors and traders find new trading ideas, the reality is that analyst calls at certain times can shake investors out of positions or trick them into staying in a position for far too long. And there are also instances when certain stocks get pounded day after day on the same sort of report from analysts on Wall Street, as if they were students passing out each other’s homework and turning it in a day later.

Since the market has been acting like a bear market toward the end of 2018, the investing public needs to at least consider certain dire warnings about many analyst calls. Sometimes analyst calls simply cannot be trusted or they just refuse to deal with the reality of a bear market. A stock that has fallen to $150 from $300 is not automatically a “Screaming Buy” and it is not always a “value stock” just because its price tanked. During the 1990s and early years after 2000, often analysts would literally issue “pounding the table” reiterations of their Buy and Outperform ratings when a stock would trade lower.

Some investors wonder about the usefulness of analyst calls, and they really bring this issue into question during bear markets when the overall market, sectors and certain stocks just fall apart. It’s not that analyst calls are worthless, nor is it that analysts have harmful intent. The issue is that analysts, just like the investing public, expect the stock market and share prices to rise over time. In fact, they count on the markets rising over time.

At a mature stage in a bull market, which we have been in for all of 2018, investors should expect newly issued analyst calls with Buy and Outperform ratings to come with expected upside targets of 8% to 10% in most Dow Jones industrial average and S&P 500 stocks. Some analysts will become more aggressive on new calls, but where analyst price targets become convoluted is when the stock market, a sector in general, or even an individual stock keeps going lower each day for generally the same reasons. That’s bear market trading for you.

What happens in many instances is that analysts will maintain their Buy and Outperform ratings while lowering their price targets. Sometimes this happens in multiple waves, and it can be quite painful for investors. After all, investors keep hearing “Buy” on something that has drifted ever lower.

Most analysts maintain Buy and Outperform ratings more than any other rating. That of course depends on what stage of the market you are in, but the reality is that many Wall Street firms just do not like to issue Sell, Underperform and Underweight ratings on individual stocks. Some analysts worry it makes them even look like they are doomsday callers, and some analysts worry that they will lose access to a company if they formally tell their clients to sell a company’s stock.

Even during the bear market trading patterns that have emerged twice in 2018, analysts often officially maintained positive ratings but lowered their price targets. This has been seen of late has been in Facebook, Apple and others. It’s simply the inverse of when an analyst reiterates a Buy or Outperform rating and raises their price target every few months during bull markets.

Investors need to understand that when analysts issue price targets they generally are looking out in a six-month to 12-month horizon. Could you imagine if an analyst said, “I am issuing a 10-year Buy rating and am calling for this stock to rise 2,000% over the next decade”? That could have been the case for Apple, Google (sorry, Alphabet), Amazon, Microsoft and any other mega-cap stocks that came public in the 1980s, 1990s and more recently.

In some instances, analysts effectively do a “pile-on” effort when there is bad news. Many great companies can still keep growing, but if that growth starts slowing they just will not give it the same upside valuation. And look out below when a bull market darling sees its growth peter out or contract. These are times we call the “analyst downgrade brigade.” This was seen in shares of General Electric, IBM, PG&E, Newell and many other companies.

The analysts do not issue their calls in the same 24-hour or 48-hour period unless there are earnings reports, analyst/investor day presentations, or other random positive and negative news about the company or about the sector. That’s when you can see the instances where news about downgrades spread out over a period of days or weeks, often with the same rationale as the prior competing analyst call a day or two earlier. Hence, the term “analyst downgrade brigade.”

One reason you simply do not see analysts downgrading the ratings of many popular stocks, even when they are obviously trading in bear market patterns, is the unpopularity and scrutiny it can bring. Analysts who have “Sell” and “Underperform” ratings are mocked daily during bull markets or when a stock is performing well. After all, it’s just not popular to tell investors to sell great companies like Apple, Alphabet, Netflix and so on when the prices have risen and risen over the years. That is just one more reason you see analysts maintaining a positive rating and lowering their price targets on multiple occasions. Analysts often feel that they look bad when they issue Sell or Underperform ratings and the market or the underlying stock rises 10% to 20% in a short time.

There is another instance where investors have to be very careful in looking at analyst reports. There is a point that analysts simply become too comfortable with their Buy or Outperform ratings. After all, imagine being the analyst who has said to sell Netflix at each reiteration after earnings while the stock has climbed up and up over the years. Ditto for Apple, Alphabet, Amazon, Microsoft and so on. Always keep in mind that nothing lasts forever. Not good economies, not bull markets and not even bear markets.

In some instances analysts issue upside price targets of 50%, 100% or even exponential upside in their price targets. These generally are seen in very small companies rather than large ones. Quite simply, the mathematics of exponential growth simply favor small-cap stocks over companies that are already worth tens or hundreds of billions of dollars. These massive upside price targets usually come in biotech, technology and a few other sectors. They are frequently seen in fad sectors over time. And they are almost always in speculative companies with limited histories and that have high hopes in the years ahead.

It should be obvious that many of these super-high analyst price targets never actually materialize. Some companies fail miserably and their stock charts should be called a “crash and burn” pattern. Other super-high price targets do actually come to fruition, but it’s harder to expect that upside to happen during bear markets than in bull markets.

If all the quality stocks are trading lower each week, the performance of speculative stocks that are full of hope without any history can suffer greatly. That is frequently true even when there is no underlying change to a company’s future expectations. When analysts issue upside of 50% to 100%, or exponential upside, while the markets are selling off each week and refusing to go higher, these types of research reports should more often than not be kept in a drawer or computer file and reviewed once the market has begun to stabilize. Unfortunately, ignoring this lesson can and frequently does cost investors dearly.

Are there any instances where analysts have intentionally misled investors or gone off the right path? Sure there are, like in the dot-com bubble and in implosion cases like WorldCom. Regulators have tried to set up and enforce so-called Chinese walls between analysts and their investment banking and trading departments. The many reasons there should be obvious enough, but the most frequent or obvious would be on firms “front-running” calls. That is an example of when trusting analyst calls could go south in any type of market.

The topic of when to trust analyst calls and when not to trust analyst calls could go on and on endlessly (it’s actually a topic for one chapter of an upcoming book).

Investors should not ignore analyst calls in general. After all, many analyst research reports can bring great insight, detail and observations that most investors simply might not ever have thought about. Still, no one is perfect. Not even Wall Street analysts. At the end of the day, there is just a reality in bear markets that analysts are frequently behind the curve and they often only downgrade a stock after a large price drop has been seen.

There is another painful reality about bear markets that no one should ever forget, whether you are thinking about analyst calls or not — you are all on your own.

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