A Bear Market Has 2 Phases

The U.S. stock market has struggled to break out to new highs since late last year. And with the bull market already long by historical standards at a time when corporate earnings have stalled and monetary policy may soon be tightening, the specter has been rising that stocks may eventually break to the downside and threaten to enter into a new bear market. But if such an outcome were to come to pass, it is important to recognize that the market does not just simply fall to the downside all at once. Bear markets tend to be more nuanced. This includes the fact that they almost always have two phases. And this point is critical for investors seeking to position for any such future outcome.

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Crisis Watch – Where Lightning Could Strike Next

It is a subject that has fixated investors since the calming of the financial crisis more than six years ago. Coming out of an experience where U.S. stocks lost more than half of their value and the global financial system nearly imploded, many were left in shock and have been bracing in the years since for the eruption of the next major market contagion. Perhaps such worries will end up being nothing more than the perpetual wall of worry that will continue to propel markets higher in the coming years. But the financial system still has major systemic risks nearly a decade removed from the last major crisis outbreak. As a result, it is reasonable to consider exactly how any such future market contagion might play itself out.

Please click on the link to read more of my article on Seeking Alpha.

You Only Live Thrice

Today’s stock market has given investors three lives over the last two decades. These lives have been born out of extraordinary policy actions intended to beckon investors toward the dream that all is well and good when in fact it is not. But just like any creature that is given multiple lives, each reincarnation brings about greater distortions from what was once reality. It also places increasing strains on those that are charged with overseeing the economy and markets to keep the corpse alive. We are now well along in our third life for capital markets, and with its next demise it is likely that policy makers will be forced to finally lay this body to rest and let the cleansing process wash over us. Such would be a most positive development, however, for with death comes a much more sustainability and healthy rebirth as a fresh market form is born anew. And for those with a plan, such a transformation offers great opportunity along the way.

Please click on the link to read more of my article on Seeking Alpha.

The Excitement Of Playing It Safe

The stock market is currently operating in rarely traveled territory. We recently entered the seventh year of what has been the third longest bull market in history. And given that we are doing so in what has continued to be a generally lackluster economic recovery with corporate earnings growth now slowing and the Federal Reserve threatening to raise rates, many investors are understandably concerned as to whether the good times for the market will soon come to an end. Of course, one could have easily made this same argument over the last several years only to be frustrated by the stock market’s persistent rise in spite of it all. This has left some investors feeling conflicted. For while they would like to continue to participate if indeed we see today’s bull market rise to become the second longest in history by this time next year, they also do not wish to get caught in the maelstrom of the next bear market that could arrive at any time. What is such an investor to do? Fortunately, the market has a select group of companies that have shown the ability to perform well during the good times while also weathering the storm during the bad times. In short, investors can realize a great deal of excitement over the long term by playing it safe.

Please click on the link to read more of my article on Seeking Alpha.

Keeping Perspective

The U.S. stock market rally during the post crisis period seemingly will never end. It is already the third longest bull market in history, and what is particularly remarkable is that it has come in the immediate aftermath of what has been the worst financial crisis since the Great Depression. Of course, the U.S. stock market owes much of its gains over the last many years to the very remedies provided by policy makers to try and fix the global economy from the crisis, so perhaps these gains are less remarkable than they are artificial and ultimately unsustainable. As a result, you may be among the group of investors whether you are currently allocated to the market or not that believes in your heart and mind that all of this will end badly, yet in the meantime you are watching the stock market rise day after day. What is such an investor to do? Hold your nose and dive fully back into stocks, thus exposing oneself to the risk of buying at the top? Or continue to stand back and watch the stock market endlessly rise for what could be a few more years?

Please click on the link to read more of my article on Seeking Alpha.

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