History Of US Bear Markets…And 2015 Stocks Forecast

January 18, 2015

2015 ForecastAll markets have always been cyclic…they go into a Bull market phase and end in a Bear market correction…over and over and over again.  Only duration and magnitude vary.  Therefore, to determine what to expect going forward, an analyst needs to carefully study the historical cycles.

Indeed looking back at history offers some valuable insights as to what the future cycle duration and magnitude might be. Indubitably, US equities as exemplified by the S&P500 Index has been in an unbridled Bull Market Stampede since March 2009…fueled by the US Fed via irresponsible copious amounts of Quantitative Easing (QE).  Effectively, the S&P500 Index has soared +214% during the past 58 months.  Incredibly, this is one of the greatest bull runs in Wall Street history…which means it is grossly overdue for a correction –i.e. the imminent birth of a new Bear Market. 

In order to have criteria and rationale to make a logical forecast for US stocks, one needs to study historical data.  In this regard we take advantage of the precise analytical work done by pundit Stoyan Bojinov. His erudite study examined all bear market corrections since 1957.  Here below are shown nine charts and corresponding comments by guru Bojinov.  These charts cover the bear markets of 1957, 1962, 1966, 1969-1970, 1973-1974, 1980-1982, 1987, Dot-Com Bubble (2000-2002) and The Housing Bubble (2007-2008).  Market expert Bojinov’s observations are always shown in quotations marks.

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1957 Bear Market

“The U.S. government began to tighten monetary policy years prior to the recession in 1958, also known as the Eisenhower Recession, in an effort to curb inflation; however, prices continued to climb and the strengthening U.S. dollar led to a growing foreign trade deficit. Notice how the S&P500 hit the same low point on three occasions before finally resuming its bull-run, giving patient investors several clues that new lower-lows would be highly unlikely as buyers began to step back in. The higher-lows seen from the start of 1958 confirmed the bottom.”

S&P

1961 Bear Market

“The expansionary period that followed the recession in 1960-61, which was a result of high unemployment and a shift to foreign-made cars, was met with another sharp decline as the Fed began to tighten monetary policy. Keen investors kept their eye on the critical support level (red line), which was confirmed after a double-bottom prior to the start of 1963; a sharp rally with higher-lows confirmed the bear market was very likely over.”

1961 Bear Market chart

1966 Bear Market

“Many economists recognize the credit crush of 1966 as the first significant post-war financial crisis. Amid economic expansion at home, the Federal Reserve proceeded to tighten monetary policy so much that it threatened the profitability of financial institutions. Policymakers had to intervene to save the municipal bond market after a credit crunch ensued and confidence was restored; the S&P500 Index proceeded to post higher-lows prior to the start of 1967.”

1966 Bear Market Chart

1969-70 Bear Market

“Rising inflation, increased deficits from the Vietnam War, and monetary tightening sent markets tumbling at the start of 1969. The economic recession at the time put a further damper on investors’ confidence and the S&P500 endured a nasty losing stretch lasting well over a year and half, shedding upwards of 35% in that time frame. The market formed a double-bottom in the first half of 1970 and proceeded to resume its bull run with higher-lows in the months following.”

1969-1970 Bear market chart

1973-74 Bear Market

“The abandonment of the Bretton Woods system in 1971, which terminated the convertibility of the U.S. dollar to gold, sent financial markets around the globe into a tailspin, with the United Kingdom getting hit particularly hard. Adding to the turmoil, the OPEC oil embargo in 1973 sent crude prices higher, further hurting U.S. consumers who also battled with the devaluation of the U.S. dollar. The S&P500 endured its worst and longest bear market to date and higher-lows in mid-1975 confirmed that the bottom was in.”

1973-74 Bear Market Chart

1980-82 Bear Market

“A second oil crisis followed in 1979 in the wake of the Iranian Revolution, sending crude prices higher and hurting consumer spending. Lingering inflation from the 1970s also prompted the Federal Reserve to raise rates dramatically, which sparked the second longest bear market to date. By the start of 1973, inflation had been tamed to 3.2% and the S&P500 Index had snapped back higher, confirming the bottom with higher-lows.”

1980-82 Bear Market Chart

1987 Bear Market

“The Federal Reserve started raising rates in 1986 to combat inflation as equity markets had enjoyed a stellar run-up; tightened monetary policy at home was welcomed with a steep sell-off that became known as ‘Black Monday’ and led to stock market crashes around the globe, starting in Hong Kong and spreading to Europe. At the same time, Iran had fired on a U.S. oil-supertanker, which led to a conflict in the Persian Gulf that further deteriorated investors’ confidence in the markets. The S&P500 endured its steepest three-month decline in history and proceeded to resume its bull run by the start of 1988.”

1987 Bear Market Chart

2000-02 Dot-Com Bubble

“The ‘90s were characterized by exceptional economic expansion, brought on largely by the rampant growth and adoption of the Internet, which forever changed the world of business and entertainment. However, speculation over technology companies peaked and then coupled with the September 11th terrorist attacks to bring the period of growth to an end. The economic recession that ensued was short-lived, however, as the dot-com bubble’s impact was fairly contained to Wall Street. The S&P500 carved out a triple-bottom in the second half of 2002 and confirmed this with higher-lows into mid-2003.”

2000-02 Dot-Com Bubble Chart

2007-08 The Housing Bubble

“Speculative lending practices fueled a massive housing boom in the U.S. that inevitably led to the subprime mortgage crisis. The subsequent collapse in housing prices combined with rising oil and food costs to send the market crashing as investors pulled money out of Wall Street amid intensifying fears over the looming global financial meltdown. This remains the steepest bear market in the S&P500’s history and contributed to what is regarded as the ‘Lost Decade’ in the U.S. stock market – the period spanning the dot-com and housing bubbles. The Federal Reserve rode to the rescue and bailed out a number of financial institutions, helping to restore confidence and bolstering equities sharply higher by mid-2009.”

2007-08 The Housing Bubble Chart

The Bottom Line

“Though history seldom repeats itself, looking back at the causes and impacts of every S&P500 bear market should help investors better understand how these events occur and how their portfolios are affected.”

2015 Forecast

The present stock market levitation is artificially fueled NOT BY FUNDAMENTALS, but rather by the Washington Administration deathly afraid that rational Americans will come to the logical conclusion that Wall Street is running on borrowed time…and that the immutable nature of market cycles will again become a terrible reality as stocks begin to crash…like they did in 1957, 1962, 1966, 1969-1970, 1973-1974, 1980-1982, 1987, Dot-Com Bubble (2000-2002) and The Housing Bubble (2007-2008).

This begs the question:  How far might the S&P500 Index decline in the next 12-24 months based upon the previous nine Bear Market Crashes noted above? 

To answer this we must assume that the Republican controlled US Congress will NOT ALLOW THE FED TO PUMP MORE QE INTO THE ECONOMY.  Consequently, the 2015 Stocks’ Forecast is the following:

upcoming bear marketDuring the above nine Bear Markets, the S&P500 lost an average of -38% in an average period of 14 months. And assuming the S&P500 Bull Market top was 2093 made early this month, then one might reasonably expect the S&P500 Index might suffer the same average Bear Market fate since 1957.  Consequently, S&P500 Index might be hammered down to about 1298 by March 2016.

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Courtesy Source:  http://traderhq.com/illustrated-history-every-s-p-500-bear-market/

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Founder of Gold-Eagle in January 1997.  Vronsky has over 42 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a financial analyst with White Weld. Vronsky speaks three languages with indifference: English, Spanish and Brazilian Portuguese.  His education includes a degree in Petroleum Engineering from the University of Oklahoma, a Liberal Arts degree from Hartnell College and a MBA in International Business Administration from UCLA – qualifying as Phi Beta Kappa and Tau Beta Pi for high scholastic achievements.  Vronsky believes gold and silver will soon be recognized as legal tender in all 50 US states…and many countries worldwide.  You may reach I. M Vronsky at: vronsky@gold-eagle.com and/or vronsky@bellsouth.net

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