Bear markets are more of a process than a percent change

Using the popular media definition of a bear market as the stockmarket being down more than 20% — at this point 40% of the world’s stockmarkets are in an “official bearmarket“.

As regular readers will know I don’t really like that arbitrary percent change definition, I thinkbear marketsare more of a process than a percent change …and depend on shifts in underlying business and financial cycles.

But it is still an interesting breadth indicator, which can be useful in generating technical analysis insights (e.g. if indicator is rising/falling, reaching extremes).

But as for real bear markets, in the context of slowing global growth, global monetary policy tightening, and correcting of previous extremes in valuations, sentiment and positioning, the current backdrop is very much consistent with what characterizes a global equity bear market.

And therein lies the clues for the next steps. To pivot from bear market to bull market, all of those things need to come full circle. Valuations need to get cheap, economy goes into recession and central banks start easing in response, positioning and sentiment get washed out, and technicals ultimately start to turn up.

Well, that’s the textbook setup or idealized framework. But certainly something to think about as the global equity bear market process progresses.