No one wants to dwell on the bad times, but sometimes it’s important to look back to know what the future may hold.
In JPMorgan Asset Management’s massive guide to global markets, David Kelly and his team included a look at the past 10 times the US stock market has headed into a bear market.
Defined as a 20% drop from the most recent S&P 500 all-time high, bear markets are associated with 4 macro indicators: recessions, commodity spikes, aggressive Fed tightening, and/or extreme valuations.
The most common factor was a recession, unsurprisingly, which has coincided with a bear market 8 times. This was followed by extreme valuations (5 times), commodity spikes and surprising, aggressive Fed tightening cycles (4 a piece).
Currently, the chart doesn’t seem to indicate that Kelly believes any of the situations exists today. There is no official recession, commodities have crashed instead of spiked, and the Fed has only just begun to raise rates. The only debatable metric is extreme valuations, and that alone has only brought down the market once, in 1961.
Despite that, it’s probably good to keep the past in mind.