Can There Be A Bear Market When The Economy Is In Such Good Shape?

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Economy  |  February 20, 2018  |  
Mike Sanders

Given the recent volatility in equities, investors remain concerned about whether we are on the cusp of a bear market.  A recent report by Alejandra Grindal of Ned Davis Research examines whether we are likely to experience a bear market given the recent signs of a robust economy.  Her work suggests the global economy is in great shape based on levels of leading indicators, global economic activity and global trade.  In recent history, “Bear markets have exclusively occurred in or around global recessions with most damage occurring while economies were in deep recession.”

If we aren’t staring at a bear market accompanied by recession, what should we look for in the months ahead?  Grindal’s work measures where global economies stand in the current economic cycle.  We are now past the mid-point but not at the end, indicating we should expect lesser but still positive equity returns.

How much longer should we expect the current cycle to continue?  Global economic activity, as measured by Purchasing Managers Indices around the world, shows the current cycle peak occurred in December.  History indicates recessions usually occur about 15 months after the peak in the cycle meaning we should still see positive equity returns in the months ahead.

For more on our outlook please see the previous blog, “Market Pullbacks, Interest Rates and Recessions” written by our founder, Russ Norwood, on February 6, 2018.