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Investors brace for bear market as probability reaches historic high

Investors brace for bear market as probability reaches historic high
Ana Zirojevic

As experienced economists and investors, such as Robert Kiyosaki, the author of the best-selling personal finance book ‘Rich Dad Poor Dad,’ continue to issue warnings of a financial crisis that could have deadly consequences, the risk of a bear market has surged to its highest level in the entire history.

Indeed, the bear market probability model on a 20-period moving average (MA) has recently climbed to 0.8 points, which is its highest level ever, according to the data and chart shared by the pseudonymous finance analyst Game of Trades on April 11.

Bear market probability model. Source: Game of Trades

As the expert explained, the above model takes into account five different macroeconomic inputs, including the unemployment rate, the Institute for Supply Management (ISM) manufacturing index, the yield curve, the inflation rate, and the price-earnings (PE) ratio.

Factors playing into bear market probability

Specifically, the seasonally adjusted unemployment rate stood at a relatively low mark of 3.5% in March, according to the United States Bureau of Labor Statistics report from April 7. At the same time, the Manufacturing ISM Report on Business registered a 55.4% reading in March, indicating growth in business activity.

As for the US Treasury yield curve, on the other hand, the yield for a ten-year US government bond was 3.48% as of March 31, while the yield for a two-year bond stood at 4.06%, which George Gammon, the host of ‘The Rebel Capitalist Show,’ believes is a warning system for the “economic tsunami” that is “not a 100 miles away,” but “100 feet away.”

In March 2023, however, inflation cooled, with the consumer price index (CPI) rising only 0.1% for the month against a Dow Jones estimate of 0.2% and 5% from a year ago versus the estimate of 5.1%, as the US Labor Department stated in a press release on April 12.

Finally, the PE ratio of the S&P 500, which is in direct correlation with the stock price, for the first quarter of 2023 stood at 21.60, slightly lower than the 22.52 measured during the same period last year, according to the Nadaq data from April 6.

Meanwhile, former International Monetary Fund (IMF) chief economist and current Reserve Bank of India governor Raghuram Rajan, who had anticipated the global financial crisis almost a decade earlier, has warned that the turmoil in the banking industry would continue to cause instability.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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