CHAPEL HILL, N.C.–The next bear market on Wall Street could very well take place even without a recession.
I refer to it and similar major declines as “valuation bear markets” because one of their distinguishing characteristics is a big reset in the valuations that investors are willing to put on stocks. Corporate profits continue to grow, but investors aren’t willing to place as high a valuation on each dollar of those profits.
How likely is it that the next major decline will be a valuation bear market? Consider all bear markets since 1900 in the calendar maintained by Ned Davis Research—38 in all. No fewer than 13 of them—34%—did not occur in proximity to a recession in the calendar maintained by the National Bureau of Economic Research, the semi-official arbiter of when U.S. recessions begin and end.
Note carefully that the “declines” I am referring to are those incurred by the major market averages, such as the S&P 500 index SPX, -0.30%, the Dow Jones Industrial Average DJIA, -0.57% and the Nasdaq Composite COMP, +0.09%.
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