Let’s Not Kid Ourselves… The Market Will Remain Under Pressure

High profile market watchers have pointed out that there have only been four times in the last nine decades when back-to-back calendar year stock declines occurred. The years? 1929-1932, 1939-1941, 1973-1974, and 2000-2002.

This could be encouraging news for stock enthusiasts were it not for the fact that 1929-1932 and 2000-2002 are included in the list. Valuation levels today have some of the same features that they did leading into the Great Depression and heading into the turn-of-the-century tech bubble.

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There’s another reason that the infrequency of back-to-back calendar year declines fails to inspire. Specifically, an arbitrary time stamp ignores the basics of bear market math.

Consider the reality that stocks fell by 38% in 2008 alone. They fell more than 50% in the 10/07-3/09 financial collapse. The calendar year stats notwithstanding, the depth of bearish stock price depreciation required four-and-a-half years for recovery. Note: The 100%-plus recovery time would likely have taken seven years had it not been for the amount of electronic credit stimulus (a.k.a. “quantitative easing” or “QE”).

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It is true that the S&P 500 has bounced mightily off of resistance near 2350. Indeed, many a computer has been set on a course to buy at that level, if for no other reason that a closing price of 2344 would usher in an official stock bear.

Technical analysts appear split on whether or not the correction lows will be “retested”. My opinion? The S&P 500 could struggle to break through and hold the 2625-2650 are of resistance. This would likely lead to revisiting the 2350 lows at some point in the first quarter of 2019.

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There are a few tailwinds to help stocks rally. The government shutdown will likely end with some sort of compromise. Meanwhile, tariff tantrums and trade skirmishes are likely to see some sort of resolution rather than a full-fledged trade war.

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser ...

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