MINNEAPOLIS, Feb. 28, 2020 /PRNewswire-PRWeb/ -- Jon Henschen's February 25, 2020 OpEd on WealthManagement.com, "The Market's Immune System May Be Compromised," comments that the coronavirus gets all the blame for the market implosion, but about two-thirds of the 19 bear market warning signs compiled by Bank of America were already flashing red. Does that mean the market's immune system is compromised?
Henschen's article opens by noting that the market has been able to shrug off numerous bearish indicators, but can it shrug off the coronavirus? Given that the S&P 500 is down close to 8% since last Friday's close, is this the infection that kills the bull market?
While prior recessions popped singular market bubbles, we are now experiencing the "everything bubble," which includes stocks, real estate and bonds. Many theories abound as to how much longer the bull market can hold up: From Brent Johnson's "Dollar Milkshake Theory"?the notion that keeping the dollar strong over the next few years, combined with things being much worse elsewhere, is bullish for the U.S. in the near term, but much less so in the long term?to gold bug Peter Schiff, who sees currency and market doom at the front door knocking (to be sure, Schiff has heard doom knocking on the door for a long, long time.)
But it may be the coronavirus that finally puts the nail in the coffin of a bull market that was already showing signs of weakness.
To take the temperature of the patient at hand, we can look to indicators compiled by Bank of America.
The bank's researchers have a list of 19 data points that once triggered, according to historical trends, indicate the market party is over. The list of 19 signs ranges from fundamental to sentiment-related indicators and uses data tracking back to 1968. As reported by Maggie Fitzgerald on CNBC.com, the signals for a bear market are as follows:
According to Bank of America, when 80% of the indicators have been triggered, a bear market has occurred. Currently 63% are in the red, up from 47% in January.
These kinds of market indicators can be akin to reading tea leaves, though Bank of America has compiled a lot of historical data to support them. But what they don't reflect is the unknown, like the impact of the coronavirus. How likely is the market to repel the contagion when these indicators suggest the patient was already sick?
Oftentimes it is the unknown that becomes the big one, the Black Swan event, potentially sending all other indicators reeling.
Jon Henschen is founder of Henschen & Associates, an independent broker-dealer recruiting firm located in Marine on St. Croix, Minnesota. With more than 20 years of industry experience, Jon is a staunch advocate for independent financial advisors, and is widely sought after by both reps and broker dealers for his expertise and advice on independent broker dealer topics. He is frequently published and quoted in a variety of industry sources, including WealthManagement.com, ThinkAdvisor, Investment Advisor Magazine, Wealth Management Magazine, Financial Advisor IQ, Financial Advisor Magazine, Investment News and others.
SOURCE Henschen & Associates
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