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Bear Markets Appear When You Feed Them

December 26, 2017

|Daniel A. White

Is there a bear market waiting to pounce?


For the first time since 2010, defaults on consumer loans are rising. Accompanying that, transportation stocks have been in a general decline. 


These two indicators combined suggest weaker economic activity, which could hamper gross domestic product (GDP) growth and corporate earnings.


Put together, this could all mean there’s a grizzly bear around.


It’s of our own doing, though. 


After all, we’re still talking about an inverted yield curve, which leads to high borrowing costs and potential credit availability issues.


Plus, as rates rise, government bonds increase in value. This means debt becomes more expensive throughout the entire economy, and takes a larger share of government spending.


When government spending is limited because of one area like debt, it means other things suffer, maybe even national defense. 


One more ominous sign for stocks is that unemployment is historically low. With the exception of 2000, unemployment overall is at a 50-year low. 


But 2000 can’t be ignored because it saw one of the biggest stock market busts of our lifetime. 


There are some other interesting unemployment “lowlights.” 


For instance, the prior unemployment low was in October 2007, which was followed by 18 months in which stocks lost 44 percent overall. 


And in the last 50 years, the lowest unemployment situation was in late 1968. Soon thereafter, stocks fell by 30 percent.


All told, we’ve seen four instances of unemployment and stock market extremes. In each one, pretty much anybody who wanted a job could get one, but stocks then crashed for 18 months after.


Uh oh, I think I just heard a growl – just kidding. 


Hopefully, 2018 is a great year, free of those pesky bears.


Happy New Year to you and yours!

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