September Confirms Bear Market

October 06, 2011

The month lived up to its reputation as a cruel one for investors ...

 

September lived up to its reputation as a cruel month for investors and left no doubt that a global bear market is in process. This is confirmed by a range of market indexes, the majority of which have declined in excess of 20%, the traditional bear market threshold (see following table).

AI_10052011_table1.png

Investors are fleeing risk in response to highly unstable economic and financial environment. Investor confidence today is as damaged as in the late-2008/early-2009 period. Investors perceive major risks—most importantly the likelihood of a new recession and the unresolved debt crises in Europe and the U.S.—and poor prospects for sustainable upside progress in risk assets. A recessionary outlook was confirmed last week by the Economic Cycle Research Institute, a private economic research group that is second to none in terms of forecasting the economic cycle. ECRI has a very strong track record, and is conservative about making recession calls. Last week, ECRI unequivocally rendered its recession verdict:

"This is a done deal. We are going into a recession. We’ve been very objective about getting to this point. A broad rangethis is not based on any one indicatorthis is based on dozens of indicators for the United Statesthere is a contagion among those forward looking indicators that we only see at the onset of a business cycle recession. These leading indicators have a certain pattern that they present in front of a recession, and that is what we are seeing now.

 

"A recession is a process, and I think a lot of people don't understand that; they're looking for two negative quarters of GDP. But it is a process where sales disappoint, so production falls, employment falls, income falls, and then sales fall. That vicious circle has started. Our Leading Indexes are saying unequivocally this is a new recession."

 

 

 

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