Market Watch: This Wall Street Legend Has Lived Through Every Bear Market Since the 1950s, Says the One Coming Could Hit the S&P 500 With a 30% Loss

Article by Jonathan Burton in Market Watch

Bob Farrell, a 90-year-old retiree in Florida, is hardly a household name on Main Street. But on Wall Street, Farrell is an absolute legend.

To say that Farrell has seen it all is an understatement. He has witnessed every bull-, bubble- and bear market since 1957, when he joined Merrill Lynch as an analyst trainee and embarked on what became a 45-year career with the firm, including a quarter-century as its high-profile chief stock-market analyst.

Farrell stays out of the public eye nowadays, but recently he shared his forecast for U.S. stocks in an interview with David Rosenberg, a respected veteran market strategist.

In the April 27 webcast for Rosenberg Research clients, Farrell said he expects investors in U.S. stock indexes could be mauled with a 30% loss and that downward pressure on share prices could last through summer. He advises selling into rallies rather than buying dips, and otherwise sheltering in value stocks — specifically in the defense, cybersecurity, utilities and energy sectors, as well as owning gold and income-generating master limited partnerships.

“We are in a bear market,” Farrell said. (Rule No. 8: “Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend.”) “Growth-tech is going out of favor; we’re gradually breaking down the big-cap stocks that have kept the S&P 500 up. By the time this is over, it’s likely that they all go into a larger decline. If the S&P 500 comes down 30%, which I think is a possibility, then you’d be down to 3,460.”

Around midday Monday, the S&P was down more than 16% from its closing record high of 4,796.56 that was hit on Jan. 3.

To Farrell, the market’s current downturn is a natural consequence of the exuberant bull run that was fueled by easy money and excessive speculation. In the past couple of years especially, a fear of missing out lured many new, inexperienced buyers to stocks, lulled by a naive trust that what goes up continues to go up.

“The longer a trend persists, the more people look at the trend as permanent,” Farrell said. (Rule No. 3: “There are no new eras — excesses are never permanent.”) “That’s why investors buy the most of an asset, like stocks or bonds, at the peak in prices, and the least at the troughs.” (Rule No. 5: “The public buys the most at the top and the least at the bottom.”)

Now the pendulum is swinging back. Where it stops, nobody knows, of course, but you can confidently count on Farrell’s Rule No. 2, which states: “Excesses in one direction will lead to an opposite excess in the other direction.”

As Farrell explained in the interview: “Speculative periods are followed by an unraveling because they usually .........

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