Investors Get Mixed Signals on Bear Market Potential

bear market

Far ahead of the bell today, some are asking investors to have a conversation about the elephant in the room – the threat of a bear market.

Day to day, we’ve seen U.S. index indicators go up at up – with S&P 500 and DJIA around all-time highs, investors might be forgiven for asking whether downturn is around the corner.

An article by Ray Martin this morning cites insights by Robert Buckland, a Citigroup investment strategist, who compares today’s situation to some of the “eye before the storm” moments preceding major past crises.

Out of an 18 point checklist, Buckland says, only a few indicators are now “flashing red.”

That’s in contrast to 12 of these indicators showing trouble signs in 2008, and more of them going off in 2000 around the “dot/com” bubble.

Buckland looks at metrics like price-earnings ratio, S&P 500 dividend yield, earnings yield and other factors.

“Taken together, some measures show stocks are on the high end of their price range, but more say stocks are the best option for long-term investors,” Martin reports, characterizing Buckland’s results. “Overall, few signs are barking that a bear market is just around the corner.”

Other analysis has the bear market coming on some ambiguous timeline.

“Is a Recession and Bear Market Coming?” asked Michael Bryant at SeekingAlpha Jan. 23. “Simple answer is absolutely. When? Not sure. A recession is a ‘part of the business cycle.’ And the business cycle is the ‘natural rise and fall of economic growth,’ which can be measured by GDP growth.”

Bryant linked prognostication to Federal Reserve activity.

“I expect the Fed to pause and then continue raising rates, especially if the job market stays as strong as the January 4 jobs report, but not on January 29-30. While the Fed issues a policy statement of economic outlook at the end of each FOMC meeting, it generally does not raise rates when the Fed Chairman does not speak,” he wrote. “This would mean that the next interest rate hike if it does happen will be in the March 20-21 Federal Open Market Committee. But even if the Fed does not raise rates, (italics ours) the graph below seems to hint that rates are high enough to cause the next recession.”

Take caution on the U.S. market.