Are You Prepared for a Bear Market?

The last bear market ended in March of 2009, nearly 4000 days ago. To say that the current bull market is long in the tooth by historical standards is an understatement. Are you prepared for the next bear market? If not, the charts below suggest that you should begin thinking about this important question.

We are in the midst of the longest bear market drought of the past 50 year:

How much of the current bull market is driven by fundamentals? How much is driven by money printing?

The following graph shows the dramatic increase in the growth of the US M1 money supply that began in 2008 and persists to this day.

Zooming in on the bear market of 2008 and plotting the money supply vs the S&P 500 is also revealing:

Corporate buybacks: Is this sustainable*?

*Source

In 2018 companies in the US spent more on stock buybacks than R&D**

**Sources: here and here

Is the economy too fragile for a return to historical norms in interest rates?

Household debt in Canada now exceeds GDP – Cause for concern?

S&P 500 Bear Markets – A reminder of how far and how fast markets can fall:

With over a decade since the last bear market, a student who graduated in 2009 and entered the financial industry now has a decade of experience but still has not experienced a bear market. If we have forgotten about their effects, this table should remind us of just how far and how fast markets can fall.

Conclusion

Is a bear market on the near horizon? It may be, it may not be. Bear markets are notoriously hard to predict as they are often triggered by black swan events. But while trying to predict a bear market is a fool’s errand, preparing for one can be the difference between financial ruin and financial longevity. At ICM we have over a decade of experience actively managing risk, and we believe that preparing for the next bear market is crucial in this unusual economic environment.