Mark Hulbert: Stock investors are still in danger, but history says bear markets are relatively brief

by | Jun 17, 2022 | Stock Market

I have no idea how long the bear market on Wall Street will last, or how far down the major averages will go. But I do know what won’t help you forecast the bear market’s severity: valuation. Bear markets that occur when the stock market is more overvalued do not last longer, on average, than those that begin when equities are less overvalued. Nor do they produce bigger losses, on average. That should come as a relief, since the stock market currently is either overvalued or extremely overvalued, according to almost any valuation indicator with a solid long-term track record.

These are the conclusions I reached upon analyzing all U.S. bear markets since 1900, according to a calendar maintained by Ned Davis Research. I determined where the stock market stood at the beginning of each bear market,according to eight well-known stock-market valuation models. I’ve written before that each of these eight historically has exhibited a statistically significant ability to forecast the stock market’s subsequent 10-year inflation-adjusted total return. I measured the correlation between these models’ readings and the length and severity of the bear markets, and cam …

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