If The Housing Market Is A Leading Economic Indicator… Are Stocks About To Enter A Sustained Bear Market?

Goldman Calls It: “Stocks May Be About To Enter A Sustained Bear Market”

Two months ago we reported that according to Goldman’s bear market indicator, the risk of a market crash dead ahead was higher than before the dot com bubble burst in 2000 and ahead of the 2008 global financial crisis, or as Goldman puts it, “our Bull/Bear market indicator is flashing red.”

Fast forward two months, and one market correction later, and Goldman’s mood has only gotten worse, not helped by the brutal market action of October, which saw many assets hitting a bear market, and the S&P falling on 16 of the 23 trading days while, collectively, equity markets across the world shed around $5tn of market cap.

To Goldman strategist Peter Oppenheimer, “the obvious question now is whether this has marked the start of a bear market more broadly, or if it is a less entrenched, albeit sharp, correction from which markets will quickly recover.” And, as he concedes, “things do not look encouraging” as three factors suggest that “equities could be about to enter a sustained bear market”:

  • First, the growth/inflation mix is turning against equity returns.

  • Second, a sharp decline is often followed by a bounce.

  • Third, the GS Bear Market Risk Indicator is at elevated levels

     

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