Forbes: Bear Market Risk Rising Due to Two Key Issues

Article by John S. Tobey in Forbes publication

Will there be a positive U.S.-China trade deal? If so, what will be the terms, when will it take effect, what will happen to the tariffs? If not, will there be a U.S. or global recession? Does the inverted-yield curve already give us the answer?

These are the popular questions in today’s volatile stock market. However, there are two, less-discussed issues that are more important. They show a rising risk of a bear market, regardless of whether a recession occurs or not.

How a bear market begins

First off, remember that it is the fear of a recession that initiates a bear market. A recession may or may not follow.

Two factors in downtrends now can generate that fear:

• Evidence of a growth downtrend in leading economic indicators

• A stock market downtrend

Note that “downtrend” is an established trend – not a short-term drop, easily reversible by a short-term bump.

At some point, downtrends get noticed and reported. When that happens, investor downside worries increase and upside hopes decrease. Then come the scary visions of how really bad conditions could get.

Two downtrends (leading economic indicators and the stock market) are increasing the risk of a bear market. Therefore, holding stocks now looks risky.

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