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Home>UPDATE: The next bear market gets closer every time stocks hit a new record

UPDATE: The next bear market gets closer every time stocks hit a new record

UPDATE: The next bear market gets closer every time stocks hit a new record

10/06/2017

By Michael Sincere, MarketWatch

Investors should never be complacent -- especially now

Recently, some professional traders have warned that the market is extremely overbought, that stocks are obscenely overvalued, and that a number of respected indicators are flashing warning signs.

For example, the Shiller P/E Cyclically Adjusted P/E, or CAPE, ratio, which is based on the S&P 500's average inflation-adjusted earnings from the previous 10 years, is above 30 when its average is 16.8.

In a recent article (http://www.marketwatch.com/story/the-us-stock-market-looks-like-it-did-before-most-of-the-previous-13-bear-markets-2017-09-21), Robert Shiller, creator of the Shiller P/E, explained how U.S. stocks now could be heading for a bear market, adding that "my analysis should serve as a warning against complacency (http://www.marketwatch.com/story/this-is-the-time-to-protect-your-capital-not-to-take-big-bets-in-the-markets-2017-09-28)."

Complacency (http://www.marketwatch.com/story/heres-how-youll-know-the-stock-markets-slide-is-for-real-2017-09-15) is the perfect description of this mindless market (http://www.marketwatch.com/story/why-your-neighbors-stock-buying-should-worry-you-2017-10-03) and how many investors feel about stocks. Sentiment indicators reflect swelling exuberance (http://www.marketwatch.com/story/how-to-protect-yourself-if-you-fear-a-stock-market-crash-is-coming-2017-10-03) as long-term investors watch their portfolios grow. (Recently, more than a few people have bragged to me how much money they're making, which is always a red flag.)

Although investors are not buying individual stocks like in the past, passive index buying (http://www.marketwatch.com/story/millennials-love-affair-with-etfs-is-nowhere-near-over-2017-09-07)is all the rage, especially with exchange-traded funds. Veteran traders and investors know how this story will end (badly), but no one can predict when. The longer we go without a correction (http://www.marketwatch.com/story/this-is-the-undoing-of-the-bull-market-and-its-here-already-says-lone-bear-2017-10-03), the more severe the eventual correction (http://www.marketwatch.com/story/enjoying-the-calm-market-dont-expect-it-to-last-forever-2017-10-03) will be.

Warning: Since its 2009 lows, the S&P 500 is up more than 250%, the second-longest bull market ever, which should put you on guard. Can we go higher? Sure, but the bear clock is ticking (http://www.marketwatch.com/story/six-similarities-between-today-and-1987-when-the-dow-plummeted-23-in-one-day-2017-10-03).

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