the bear market ALMANAC
U.S. Corporate Debt
Debt problems can come from consumer, government, or corporate debt.
50%
Housing bubble
??
Tech bubble
Late-1980s boom
45%
40%
35%
30%
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
Source: Federal Reserve Bank of St. Louis
Indebted businesses can’t refinance, and those businesses go from profitable to bankrupt. Debt problems can come from consumer, government, or corporate debt. We’ll use corporate debt as our proxy here. We’re watching the debt cycle... What you should note is that the biggest bear markets come attached to the biggest downturns in the credit cycle. The late-1980s, dot-com, and housing bubbles led to some of the biggest declines in our bear market table. The ones in between are smaller. The first cracks in the credit cycle will show up here. The Federal Reserve reports that 2.8% of banks today are tightening standards for commercial borrowers, and 6.4% of banks are keeping a closer eye on consumers... despite the fact that most banks have been loosening standards since 2010.
PROTECTION BEFORE A BEAR MARKET COMES We’ll focus on three ways to protect your investments from a bear market... First, an impending bear market doesn’t mean you should sell all your stocks. Stocks have been the greatest wealth-building tool in all of history. But you might want to take a closer look at which ones you own. We looked at the 11 broad sectors of the market and their performances over the last six bear markets... As you can see, utilities, consumer staples, and health care stocks offer opportunities to safeguard your wealth. Aside from the global financial crisis, every other bear market has had some sectors that stayed near even, and some that even posted gains.
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October 2019
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