–One old-time, but still useful, definition is that the bear market ends when the last bull capitulates. I understand capitulation to mean shifting one’s holdings from stocks whose attraction is the possibility of large gains to ones whose charm is that they won’t go down much. Another way of looking at this is that the shift is from growth stocks which are bought because of the possibility for large future earnings gains to value stocks, whose attraction is that they are trading at substantial discounts to the assets already on the balance sheet.

Another aspect of this relates to financial leverage, meaning that there’s a whole class of professional investors who make much of their gains by borrowing large amounts of money–from domestic banks or abroad–to invest in ways they think will cover their interest costs and substantially more than that. In a down market, this equation reverses itself, with borrowers dismantling the debt/equity structures they have built. This process is in its early days, suggesting that for such speculators, more pain is still in front of them. This unwinding exerts downward pressure on the markets in general.

–Historically, the US stock market has been the most important leading indicator of domestic economic activity. It has tended to signal the ups and downs of GDP by about six months. My picture of why: new orders are coming into your firm for the first time in, say, a year. The personnel department lets line managers know they should be on the lookout for new workers to hire. Or, the CEO has a new spring in his step, whistles in the elevator (which he only does when sales are rising) and is booking a vacation for his/her family at Disney World or Universal Studios. This gets around relatively quickly–and people interested in the stock market begin to buy.

We’re nowhere near there yet, as I see it. In fact, we’re in the opposite position. We’ve had exceptionally good gains in 2023 and 2024. So we were arguably due for a breather. More important, the current administration seems to be hell bent on delivering a new version of the 1930s to the US.