Bear Market, How much longer will it go on ?

John, How longer will it go on ?  

Drip, drip, drip. I had a client last week tell me that this bear market just seems to drag on and on and on. She asked, “how much longer with this Chinese water torture?” My response was, “well, I’m not too sure about this Chinese water torture thing, but I and most investment advisors are watching the Fed’s next two or three rate raises – as the next opportunity the Fed can raise rates would be in September, November, and possibly in December.” I believe that after these three rate raises, they will have sufficiently raised rates enough to slow the economy down, and with it, inflation.

The economy is already slowing down. Home sales are going down, car sales are going down. Even Walmart is complaining that they’re not able to sell merchandise on their non-produce side of the store. As mortgage rates have hit a 15-year-high, home sales and new home starts have dropped very significantly. It’s interesting to me, that if you look at some of the car lots 7 – 8 months ago there were no new cars on the lots, and now you noticed the lots are starting to fill back up.

When do bear markets end? Well, Mark Hulbert published an article, CLICK HERE ON THE LINK TO READ:

https://www.marketwatch.com/story/the-stock-market-typically-bottoms-before-the-end-of-a-fed-rate-hike-cycle-heres-how-to-make-that-bet-pay-off-11661850439  (1).

He studied multiple bear markets and their correlation to the Fed rate rise. He noticed in the last six bear markets, that the market bottomed out 2 months before the last Fed rate rise. He also studied the performance of the stock market after the bottom. Ultimately, the average 1-year return of the S&P500 after the market bottomed was 25%. I believe the last rate hike will be in December, so it is possible the market will find a bottom and course in October.

The biggest wild card out there today is Europe because to quote a phrase from the HBO series Game of Thrones, “Winter is coming.”(2)

Energy prices have quadrupled in Europe primarily for two reasons, Putin’s control of the natural gas pipeline and our dependency on green energy. I believe energy costs will not only make it a challenge for the industry, but I think that this winter we will see wholesale rationing. Europe is looking at a much more intense recession than we face.

Riddle me this. Since California has announced the phase-out and the complete ban on gas combustion automobiles in 2035 – how is this going to work? California now has about half a million electric vehicles with about 22 million gas autos. Over Labor Day, because of the power outages, they asked people not to charge their electric vehicles. If the electric grid cannot handle half a million vehicles today, then how in a few years can it handle 25 million? The answer is it can’t!

Don’t fight the Fed. When it is all said and done, I believe that the Fed is on the right course of raising rates. It will in all (most likely) worsen the economy. However, I think most Americans would rather have a short-term worsening economy versus multiple years of high single-digit inflation.

Best regards,

John Romano, CFP®
Office Phone #: 352-753-8590 Email: [email protected]

John Romano, CERTIFIED FINANCIAL PLANNER™, has over 30 years of experience in the financial field. John is a Registered Representative with Securities America, Inc. (a member of the FINRA and SIPC), and an Investment Advisor Representative with Securities America Advisors. He has prepared hundreds of reports for retirees to assist in their retirement income planning needs. He is dedicated to providing portfolio analysis, dividend and income information, and investment management services to retirees (and those preparing to retire) in The Villages, Florida, and throughout the United States.

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(1)  The stock market typically bottoms before the end of a Fed rate-hike cycle. Here’s how to make that bet pay off. – MarketWatch

(2)  https://ew.com/tv/2019/03/27/game-of-thrones-best-quotes/