Sometimes I read something so utterly stupid that I cannot contain myself. The stock market forecast below from RBC Capital Markets qualifies as just that. Get this. Apparently a bear market in equity prices will wait for an actual recession to happen before taking the markets lower.
But Jonathan Golub, chief U.S. market strategist at RBC Capital Markets, wants you to consider this: “rallies do not end when they get tired, they end when recessions ensue.” In a Monday note to clients, he writes that seven of the last eight bull markets ended at the onset of a recession:
It appears Mr. Golub confuses cause and effect. Recessions do not cause bear markets. Bear markets cause recessions. Get it through your heads everyone.
Take a look at 2000 and 2007 bear markets for instance. The official recession numbers tend to show up 6-9 months after most of the financial markets top out. In fact, according to the recently released FED minutes, Bernanke was talking about growth and tightening as late as Q2 of 2008.
What causes bear markets? They are cyclical in nature. There is a beautiful mathematical structure within the stock market that tends to control the ebb and flow of the forces within it’s multidimensional composition. Once that mathematical structure is understood it is fairly easy to predict exactly when the next bear or bull markets will occur.
Speaking off, our mathematical work continues to indicate that we will have a severe bear market between 2014-2017…..followed by a deep recession. When it starts it will very quickly retrace most of the gains accrued over the last few years. If you would be interested in learning exactly when the bear market will start (to the day) and its subsequent internal composition, please CLICK HERE
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Shocking Truth Revealed: Recessions Do Not Cause Bear Markets. Google
Market Watch Writes: Bull market won’t die until a recession hits: RBC
Investors are hotly debating whether this five-year-old bull market can tack on more years of spectacular growth. But a strategist at RBC Capital Markets has a boldly simple prognosis for the years ahead: it would likely take a recession for the market to reverse course.
After 30% gains in 2013, the S&P 500 index SPX +0.32% is up a mere 0.6% this year. Given the fraught push forward in 2014, investors have approached the bull market with feelings of trepidation.
But Jonathan Golub, chief U.S. market strategist at RBC Capital Markets, wants you to consider this: “rallies do not end when they get tired, they end when recessions ensue.” In a Monday note to clients, he writes that seven of the last eight bull markets ended at the onset of a recession:
On to the next question: Are we approaching a recession? Golub says that answer is no, given the sluggish pace of our recovery from the last recession:
“No two recessions are the same, but they tend to follow a similar pattern. Typically, an accelerating economy burns through existing spare capacity. This leads to inflationary pressure, which forces the Fed to act. As markets anticipate rate hikes, the yield curve inverts. Growth slows and, more often than not, the economy rolls over, taking the market with it.
“The current economic rebound is the slowest of the post-war period. Growth is being held back by a modest housing recovery and weak business confidence. As a result, abundant spare capacity exists, which prolongs the length of the cycle.”
All in all, the silver lining of our slow economic recovery is that another recession is a fair distance away, says Golub:
Therefore, Golub’s bull-market thesis remains intact: Price-to-earnings ratios will continue to expand, leading to double-digit returns over the next few years.
As the bull market turned five years old last month, MarketWatch’s Wallace Witkowski quoted Jeff Kleintop, chief market strategist at LPL Financial, who similarly noted theconnection between the end of bull markets and recessions. But Kleintop and other strategists asserted that for the bull market to continue, one key ingredient is acceleration in growth — not just a continuation of its sluggish pace.
By one analysis in the story, U.S. economic growth needs to hit 3% by the end of 2014 to keep the bull market alive, no easy task considering a slowdown in growth to start the year.
In the fourth quarter on 2013, GDP hit 2.4%. We’ll get one sign of just how fast the economy is humming along when we get a GDP report for the first quarter of the year on Wednesday.