It's official. We have entered a bear market. Five years ago I would have been confident that the bottom for this bear market would be in the 7000's on the Dow (750-900 on the S&P 500). My confidence would have come from the apparent success of my stock cycles model which predicted a secular bear market lasting for about 20 years after 2000 (see link).
https://www.amazon.com/Stock-Cycles-Stocks-Markets-Twenty/dp/0595132421
Secular bear markets are a period of sideways action when the market makes no progress like in the 1930's, 1970's and the 2000's. Over the 2000-2014 period the action of the market corresponded to past secular bear markets as shown in the first figure in this article:
https://safehaven.com/article/44403/stoc...2017-06-13
The graph shows the market trajectory since Jan 1999. In 2014 (year 15) the market rose above where it had been in secular bear markets, indicating one of two things:
(1) that the secular bear market had ended in 2009, at a level higher than the last three secular bear markets, but above the one from the 19th century.
(2) the structure of the secular market had changed.
At its September peak, the market reached a level consistent with the start of a secular bear market. That is, the end of what is called a secular bull market. The term "secular" refers to a trend that lasts longer than a single business cycle. The 2000-2009 decline contains two recessions and one expansion as so still is secular because it extended beyond a single business cycle. However this entire post-2009 rise has been within a single expansion, so it's not really a secular bull market, but an ordinary bull market. However we are fully as high as a typical secular bull market level end (e.g. a bit higher than 1929).
With the bear market call, the bull is over, it ran from March 2009 to September 2018, longest in history. Typically the end of the bull market occurs 3-9 months before the associated expansion, so I expect the NBER to call the start of the next recession in 1Q to 3Q 2019. So this bear market will be a recession-linked bear, as all the bear markets since 1990 have been. And it will be a bear from a high level so the declines will almost certainly be more than 50%. Therefore I believe you can *probably* from here profitably and get back in lower, if you are on a short (less than a decade before you retire). If you have more than decade, no problem, the market will recover, even if it tanks 70% (which it might) DON"T sell at the bottom.
Ok, disclaimers in, How low can we go? Well it depends on whether to treat this as an "orthodox" secular bear market, in which the levels I mentioned above would apply, or whether you consider the 2009 bottom as the "new normal". My gut feeling is, the lower levels (7000-10000) are only likely if we get another financial crisis AND there is no TARP-like effort to prevent a collapse in asset prices (i.e. a potential Wall St bailout fails to pass). If we get a crisis and a TARP II then the 10000-13000 range is more likely. And if there is no crisis at all then we could be bottoming around 15000-18000.
https://www.amazon.com/Stock-Cycles-Stocks-Markets-Twenty/dp/0595132421
Secular bear markets are a period of sideways action when the market makes no progress like in the 1930's, 1970's and the 2000's. Over the 2000-2014 period the action of the market corresponded to past secular bear markets as shown in the first figure in this article:
https://safehaven.com/article/44403/stoc...2017-06-13
The graph shows the market trajectory since Jan 1999. In 2014 (year 15) the market rose above where it had been in secular bear markets, indicating one of two things:
(1) that the secular bear market had ended in 2009, at a level higher than the last three secular bear markets, but above the one from the 19th century.
(2) the structure of the secular market had changed.
At its September peak, the market reached a level consistent with the start of a secular bear market. That is, the end of what is called a secular bull market. The term "secular" refers to a trend that lasts longer than a single business cycle. The 2000-2009 decline contains two recessions and one expansion as so still is secular because it extended beyond a single business cycle. However this entire post-2009 rise has been within a single expansion, so it's not really a secular bull market, but an ordinary bull market. However we are fully as high as a typical secular bull market level end (e.g. a bit higher than 1929).
With the bear market call, the bull is over, it ran from March 2009 to September 2018, longest in history. Typically the end of the bull market occurs 3-9 months before the associated expansion, so I expect the NBER to call the start of the next recession in 1Q to 3Q 2019. So this bear market will be a recession-linked bear, as all the bear markets since 1990 have been. And it will be a bear from a high level so the declines will almost certainly be more than 50%. Therefore I believe you can *probably* from here profitably and get back in lower, if you are on a short (less than a decade before you retire). If you have more than decade, no problem, the market will recover, even if it tanks 70% (which it might) DON"T sell at the bottom.
Ok, disclaimers in, How low can we go? Well it depends on whether to treat this as an "orthodox" secular bear market, in which the levels I mentioned above would apply, or whether you consider the 2009 bottom as the "new normal". My gut feeling is, the lower levels (7000-10000) are only likely if we get another financial crisis AND there is no TARP-like effort to prevent a collapse in asset prices (i.e. a potential Wall St bailout fails to pass). If we get a crisis and a TARP II then the 10000-13000 range is more likely. And if there is no crisis at all then we could be bottoming around 15000-18000.