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- The next bear market will likely be associated with a U.S. recession. While it is impossible to pinpoint exactly when this might occur, the risk of recession is growing as the expansion ages.
- Most likely, the next recession will be milder than the last, and the next bear market will be milder than the last two.
- Some believe that because of low prevailing interest rates on bonds and cheaper international equity valuations (relative to the U.S.), bonds should provide less protection and international equities should provide more protection in the face of falling U.S. equity markets. Research using data from the last 25 years suggests this may not be the case.
- However, relative valuations that suggest international stocks may be somewhat undervalued and high-quality bonds may be somewhat overvalued, indicates some opportunity in being overweight the former and underweight the latter in the period before any significant U.S. equity downturn begins.
Timing the next bear market
Every recession does not have to trigger a bear market, and every bear market does not have to be associated with a recession. As shown in Exhibit 1, since 1929, the U.S. has seen 10 bear markets and 14 recessions, with 8 of the bear markets associated with recessions. Moreover, the two bear markets that were not associated with recessions ended within six months. Therefore, although other triggers are possible, a recession is the most likely cause of a sustained bear market in U.S. stocks.
JPMorgan Asset ManagementSee the rest of the story at Business Insider
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