“How Bull Markets End” – Wells Fargo Prepares Clients For Economic Downturn

Wednesday, October 30, 2019
By Paul Martin

by Tyler Durden
Wed, 10/30/2019

A new report from the Wells Fargo Investment Institute (WFII) examins the 126-month-old economic expansion, the longest in U.S. history, along with one of the longest bull markets in the S&P500, gaining 350% in about a decade. The length of the economic expansion and the total return in the stock market have recently caused fear among investors, signaling the good times are about to end.

The report, titled “How Bull Markets End: Investment Strategies to Prepare for the Next Downturn,” examines the relationship between equity bear markets and economic recessions, while carefully studying warning signs that could mean it’s time for investors to start positioning for the next downturn.

“The sheer length of our current expansion has investors worrying when the bull market will turn into a bear market. We are persistently watching for cautionary signals that can predict changes in the markets, and right now the indicators we’re studying don’t suggest it’s time to issue a storm watch,” said Darrell Cronk, president of the WFII and CEO of Wealth and Investment Management at Wells Fargo. “Still, investors want to know when a storm is brewing in the economy and markets and how they should prepare for it.”

A contraction in forward EPS is a significant threat to the S&P500 in the quarter ahead, and one of the main reasons why the total return on a year-over-year basis for the equity index has stalled.

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