Top 2 Reasons Why the Stock Market will Keep Falling

Last post, I gave two reasons why the stock market would start rising again.  This week, I’m going to give you my favorite two reasons why the stock market rout isn’t over yet.    

Again, I’m not doing this to predict.  I’m only doing this to demonstrate how you can get the stats to say anything you want them to say. 

Reason #1:  It’s been awhile since the last Bear Market. 

Since 1835, bull markets in the U.S. have typically lasted 41 months, just shy of 3 ½ years, according to the J. Anthony Boeckh’s excellent book,  The Great Reflation.  This bull market started in October 2011.  The S&P 500 peaked in May 2015, which is 43 months later.  I do need to explain myself here a little. 

Most folks define a bear market as a 20% decline or more from peak to trough.  Mr. Boeckh, and his firm, the Bank Credit Analyst, define it as a 15%+ decline.  Since many of my clients begin getting nervous once the market falls by 15%, I have adopted this definition. 

But here’s the important takeaway:  The average decline in a bear market has been 36%.  So far, we’ve fallen 15%. 

Reason #2:  Profits are declining.

The stock market is ultimately at the mercy of it’s profits.  Owning a stock is really just a stake in the company’s profits, or lack thereof.  When profits are going up, the stock market goes up.  And when profits are going down, the stock market follows.  You can see below that profit margins have been declining.  In six of the last seven instances, a profit decline of the magnitude we’re experiencing has resulted in a recession.  And in a recession, the stock market declines around 40%. 

So, there you have it.  My top two reasons why the stock market will continue to fall.  Now let's wait and see what actually happens...