Tags: stocks | market | Fed | downturns

USA Today: Things That Could Usher In a New Bear Market

Friday, 07 Mar 2014 01:24 PM

By John Morgan

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There are at least four potential developments that could kill the U.S. stock market rally, which is now a bit long in the tooth by historical standards, USA Today reported.

The current bull market was born at the bottom reached on March 9, 2009, and thus its fifth anniversary looms large as the average bull market lasts less than four years, according to InvesTech Reseach data.

Further, stocks have also gone 29 months without enduring a correction of 10 percent or more, although historically corrections have occurred on average every 18 months, according to S&P Capital IQ.

Editor’s Note: 250% Gains Bagged Using Secret Calendar (See Video)

"The longer we go without resetting the dial, the greater the likelihood of a steeper correction, and the greater likelihood that it becomes a bear market," said Sam Stovall, chief equity strategist at S&P Capital IQ.

USA Today listed various potential pitfalls that could trip up the stock rally.

The most common snag would be a recession. Most of Wall Street’s worst market periods, including 1973-1974, 1937-1942 and 1929, were all accompanied by economic downturns.

The second most common pitfall would be tighter monetary policy by the Federal Reserve and inflation, USA Today said.

Todd Schoenberger, managing partner at LandColt Capital, said the Fed’s current efforts to taper its unprecedented and massive asset purchases could have unintended effects.

"It's difficult to predict what will happen as a result of tapering," said Schoenberger. "No one knows what it means for stocks or the economy. I don't see the supporting evidence to suggest the economy can support itself without help from the Fed. With less stimulus, earnings and the economy are unlikely to be strong enough to justify current prices."

A third reason bear markets take over is because of excessive stock valuations. However, USA Today concluded the current stock market is not widely overvalued “by any measure.”

The final potential pitfall would be an unexpected shock from external events, similar to the 2008 failure of Lehman Brothers, or perhaps an economic upheaval in China, or an escalation of the crisis in Ukraine.

While different analysts often measure the length of bull markets differently, and from different starting and end points, CNN Money concluded the longest bull run began in late 1987 and lasted until the tech crash of 2000, a stretch of more than 12 years.

A January survey of 30 market strategists by CNN Money found most were expecting the S&P 500 to hit 1,960, up about 6 percent for 2014.

Barron’s
reported Howard Marks, chairman of Oaktree Capital, told a Swiss publication that U.S. stocks still have room to go higher, although he urged a bit more caution at this point.

"Now people are in the process of falling in love again" with stocks, Marks said. "And every year that stocks do well wins a few more converts until eventually the last person jumps on board. And that's the top of the upswing. But I don't think that craze is back now. That's a reason for optimism, because that means more affection can develop."

Editor’s Note: 250% Gains Bagged Using Secret Calendar (See Video)

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