Lessons From the Short Bear Market

The dog days bite.

John Rekenthaler 08 September, 2015 | 17:48
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Socrates Says
Little did I realize when writing Lessons From the Long Bull Market, published only two weeks ago, that I would so quickly be composing its bookend. (Technically the U.S. is not [yet] in a bear market, which requires a 20% decline from peak value. But permit me the verbal symmetry.)

In my ignorance, I had plenty of company. Just as few foresaw the long bull market, few anticipated the recent downturn. Sure, there are people who have predicted 17 of the last three sell-offs, and who will claim to have called this one, too. Nope. Huddling in a tent for several years straight, then leaping up to exclaim "Aha!" when the thunder finally sounds, does not a rain doctor make.

Besides, the skeptics got the causes wrong. The stock market was supposed to tumble because of the Federal Reserve's loose policies (quantitative easing!), which would spark inflation and sink the dollar. But inflation has remained low, oil prices have plunged, and the dollar is strong. In addition, Treasuries have rallied, whereas per the bears' inflationary thesis they should have fallen. This downturn has not followed the bears' script.

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John Rekenthaler  is vice president of research for Morningstar.

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