Are We In a Bear Market Or Not?

On April 5th, I posted "the bear market had officially begun". Since that time, the market has been volatile, but has recovered some. Do I still think we are in a bear market? To be blunt, yes!

The indicators I use to determine a bear market (reviewed in the April 5th post here) have been back-tested for over 120 years. They accurately predicted each bear market as it began. I suppose there is always a first time they will be wrong, but the odds of that happening this time are small. They clearly specify when money is consistently flowing OUT of the market, which precedes the majority of the market's decline.

Bear markets can last anywhere from 6 to 24 months, with the average just over a year, with an average decline of 36%. So if we started in April, we have just over 11 more months to go if this bear is average.

The patterns of a bear market are fairly common. They usually begin with a persistent sharp selloff that seems like a strong correction. We saw this happen in the first four months of 2025, as the Dow fell from 45,000 down to 36,500, an 8500-point 19% loss. By all standards, this drop was fast and sharp.

While I am not suggesting the start of a depression, the Great Depression began similarly, as the market initially fell 40% from September 1929 through October 1929.

The next phase is a brief snapback recovery. The economy isn't yet falling off a cliff. This is what we have seen since mid-April, where the Dow is only now down 3800 points, or 8%. Similarly, from November 1929 through March 1930, the market regained over half of its losses, all while the economy was seemingly still strong.

Because it doesn't seem like things are bad, this reaction rally can convince many that we only experienced a correction. Many investors see this rally as a "risk on" opportunity, and just as they put money back in, that's when the market moves to the next phase lower.

The next step in the pattern happens before the market fully regains its prior high of 45000. Technical traders will use a "Fibonacci Retracement" measurement to gauge the possible reversal points at which time the market will resume its decline. Key retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%. You can read about Fibonacci Retracements here, and we can see the Dow has currently retraced 55% of its recent decline.

Since we solidly passed the 50% retracement, the next likely reversal point is at 61.8% retracement, when the Dow hits 41800. This is just 560 points away from where it closed yesterday. This level would also "fill the gap" caused by the big decline on April 2nd (you can read about trading gaps here).

Continuing the example of the Great Depression from March 1930, the market decline continued into mid 1932, with the Dow losing 90%. As I have said in the past, today we are NOT looking at a depression scenario. The Great Depression was "engineered" by The Federal Reserve banks, using an intentional and significant reduction of the money supply, reducing it by 33%. They wanted Hoover out of office, and it is always the President who gets blamed for the economy, not the banks. Hoover was a gold standard advocate, and gold was the Federal Reserve's competition. They wanted gold eliminated as money in the United States, and they succeeded in this effort once President Roosevelt signed Executive Order 6102 one month after being inaugurated. Unlike 1929, today the M2 money supply continues to grow, with no slowdown indicated.

One possible trigger for a market reversal lower from here is a breakdown in tariff discussions with China. This is a high probability. Economically, the United States is at war with China. It would be foolish if suddenly we hand them control of the game board. While I believe tariffs are good for America over time, investment banks and most traders who want short-term profits will argue otherwise all over the news. Russia's Communist dictator Vladamir Lenin was once quoted as saying, "American capitalists will sell us the rope we use to hang them with." Bankers and traders tend to have this mindset, and will opt for the immediate profit vs. long-term value.

Another possible trigger for a market reversal could be military conflict, either with Ukraine, or perhaps the Gaza strip in Israel. Or maybe China decides to move against Taiwan, a country they officially recognize as their own property, and not a sovereign nation.

I can think of hundreds of things that could knock the stock market lower. While my indicators tell me the market is more likely to move lower before it resumes a new bull market, it does NOT change my regular pattern of buying stock, gold, and crypto, whatever makes most sense when I make the purchase. Just this week, I bought more Bitcoin. Any time I can take fake money designed to decline in value (i.e. the U.S. Dollar) and exchange it for real assets with intrinsic value and/or growing value, I am getting a good deal, even if all I do is retain my value.

Historically, the stock market is still expensive, and I see more pressure to it moving lower than higher over the next several months. That said, many stocks still offer excellent value. I continue to favor AT&T, Microsoft, General Motors, Caterpillar (since it has dropped), Chevron, Genuine Parts Company, and several others. Over time, companies like these will continue to throw off healthy dividends, and whether the market is rising or falling, I continue to buy one or more of these regularly.

Bear markets should not be "scary" if you buy quality assets and hold them for at least ten years. If anything, a bear market is an opportunity to buy for less money. The stocks go on sale! And if you buy quality regularly, you have no concern of where the market is, nor will you have concern about trying to predict it. Not every prediction is always right, including my own.