Monday , 4 December 2023

Bubble-level Valuations Don’t Cause Bear Markets! These Factors Do

So much analysis we see and hear lately is concerned with whether the stock marketbubbles is in a bubble or not. [The truth of the matter, however, is that] bear markets do not begin due to bubble-level valuations being reached and then bursting, but in anticipation of [half a dozen mitigating factors as outlined in this article].

The above introductory comments are edited excerpts from an article* by Sy Harding ( as originally posted on under the title  Enough With The Bubble Talk Already.

The following article is presented courtesy of Lorimer Wilson, editor of (Your Key to Making Money!)and (A site for sore eyes and inquisitive minds) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.

Harding goes on to say in further edited excerpts:

A sampling of headlines in the last month [that have appeared on are as follows:]

  1. Dow About to Correct 14-18%, Then Increase 111-122% Into 2017
  2. Cycle Analysis Suggests S&P 500 Has Topped & Will Decline To Major Low In 2016
  3. Make No Mistake – A Major Stock Sell-off Looms! Here Are 4 Ominous Signs
  4. Extreme Greed By the Crowd Suggests You Show Some Fear! Here’s Why
  5. Collapse of S&P 500 May Be Only Weeks Ahead! Here’s Why
  6. Beginnings of Massive Stock Market Correction Developing: Don’t Delay, Prepare Today!
  7. A 20%+ Sell-off is Brewing In the Lofty U.S. Stock Markets – Here’s Why & What the Future Holds
  8. Next Bear Market Shaping Up To Be Quite the Storm – Here’s Why
  9. Part 1: Economic Ice Age Is Coming – Dow Dropping to 1,000
  10. Bradley Model Suggests Major Turning Point In Stock Market Is Imminent
[While it is true that] we had an extremely unusual 2 bubbles in the first 8 years of the new century, the dotcom/stock market bubble in 2000 and the housing bubble in 2006, historically:

  • the market has reached bubble conditions perhaps once or twice in a lifetime,
  • experiences a 10% to 20% correction on average of once a year, and
  • a serious bear market on average of every 4.5 years.

]To be more specific]:

  • there have been 25 bear markets over the last 113 years, or one on average of every 4.5 years. The average decline was 36.5%. The ten worst averaged a decline of 49.9%.
  • there have been only 2 serious bear markets – 1929 and in 2000 – as the result of the market being in a valuation bubble that burst. You might be able to stretch the requirements enough to call the 1973 top prior to the 1973-74 bear market a bubble, but it would be a stretch.

Bear markets begin…not due to bubble-level valuations being reached and then bursting, but in anticipation of:

  1. a slowing economy and potential recession or financial crisis (domestic or global),
  2. rising inflation,
  3. rising interest rates,
  4. global events,
  5. or just because the bull runs out of energy.

At those times, stocks are usually overvalued, but not to anywhere near bubble proportions.

Therefore, let’s cool down the bubble talk. Bubbles are probably still once in a lifetime events but, either way, whether we are in one or not has almost nothing to do with market risk of serious corrections or bear markets.

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

* (© 2014 Seeking Alpha)

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