10 Bear Market Catalysts To Watch For

My Comments: I guess it’s human nature to abhor a vacuum. If there isn’t a crisis, we invent one. We’ve had 5 years of mostly good times in the markets, since about the first of April in 2009. The second chart below kinda proves that.

From a timing standpoint, we’ve had people predicting the end of the world on a daily basis, probably since the beginning of time. For the most part, they’ve been wrong. But as I get older, I realize almost daily that what I could have easily overcome twenty years ago is increasingly difficult. What used to take an hour to get done now takes two hours, or more. So I guess I look for excuses instead of remedies.

I offer you this chart, which is the S&P500 over the past 20 years, with peaks in 2000, in 2008 and now. My point? That the good times come to an end, but then so do the bad.

David Moenning / Apr. 29, 2014

To be sure, the current stock market environment is challenging. Intraday volatility is quite high, the major indices are not marching to the beat of the same drum, and holding the wrong stock or sector ETF has proved to be a frightening affair in 2014.

In case you can’t relate to this sentiment, check out the charts of the ETFs in Biotech (XBI), Internet (FDN), and Social Media (SOCL) or names like Netflix (NFLX), Amazon.com (AMZN), LinkedIn (LNKD), Pandora (P), Yelp, and Twitter (TWTR).

In short, the action has been more than a little scary at times. This is a market where it has been oh-so easy to lose money and with the exception of the strategy of being long only on Tuesday’s (according to Bespoke, being long on Tuesday’s would have produced a gain of 9 percent so far this year), making money has been downright difficult.

Time For The Bears To Return?

The action has left many analysts worried that the current bull market, which is clearly long in the tooth by just about any measure, could be slowly morphing into something far grizzlier in nature. As such, this might be a good time to review what might cause the bears to suddenly awaken from their hibernation and begin wreaking havoc on people’s investment portfolios again.

But before we get started on a review of potential bear market catalysts, let’s remember that, as the chart below of the S&P 500 plotted weekly clearly illustrates, this remains a bull market.

SPX-Weekly-4-28-15However, if investors have learned anything over the last 15 years, it is that (a) all good things come to an end and (b) bear markets are no fun (and should be avoided if at all possible).

So, given that this bull has run a long way and as it can be argued, is looking a little tired, it is a good idea to be on the lookout for potential bear market catalysts.

We’ve come up with about a dozen. So, let’s review.

Bear Market Catalysts

Fed Surprise: Experienced investors know that markets don’t like surprises – especially when it comes to the Federal Reserve. One of the oldest clichés on Wall Street is “Don’t fight the Fed.” Remember, the Fed usually gets what it wants. So, if Ms. Yellen and her merry band of central bankers suddenly have to make a course correction due to inflation or some such thing, stocks will NOT react well.

Therefore, it is a good idea to listen carefully to everything the Fed says and writes these days. The bottom line here is that this bull has been sponsored in large part by the Fed’s uber-easy monetary policies and the QE money printing programs. And while Bernanke and Yellen have gone out of their way to try and provide an expected course of action for the Fed to follow, if they were forced to take a different tack, well, it might not be pretty.