When Will Our Bull Market Take a Nosedive?

Posted: Updated:

Last year was phenomenal for the U.S. stock market. It's had a fantastic run since the dark days of 2008. But the question on everyone's mind is: How long can this last? And will we pay for it with another gut-wrenching crash? Here's what our current economic situation suggests...

The Optimistic Outlook

Let’s start with the good news:

  • U.S. economic growth has accelerated, and job growth remains strong.
  • The recently passed Tax Cuts and Jobs Act seems likely to provide a further boost to the economy - at least in the short term.
  • The 45 major economies tracked by the Organization for Economic Cooperation and Development (OECD) all grew in 2017, i.e. none were in a recession. All 45 are projected to keep on that growth path through 2019 (Source: Bloomberg, OECD).
  • The Leading Economic Index remains positive, indicating no sign of decline in economic activity at the moment.
  • Corporate earnings are growing at a double-digit clip and are expected to continue throughout 2018.

Most of these positive indicators refer to the economy in general rather than the stock market specifically; however, the two are connected. Historically, the stock market has fallen in advance of recessions. Fortunately, the likelihood of a recession seems low at the moment. This continuing (and potentially accelerating) economic growth is likely to support the stock market.

The Not-So-Good News

On the other hand, there are several reasons for concern:

  • By most measures, the U.S. stock market seems to fall somewhere in the "overpriced" to "very expensive" range.
  • Investors appear to be ignoring risk, either because they fear missing out on good returns or they are following an investment strategy based on relative returns. For example, some may think that stocks may be expensive, but they look better than cash at <1 percent or bonds at 2 percent.
  • The government's fiscal situation continues to deteriorate and the TCJA will likely exacerbate the issue over time.
  • The Fed has indicated it will raise interest rates in 2018, which could eventually have a negative impact on the economy.

None of these negative issues are currently affecting the stock market, but they may at some point.

Corrections, Bear Markets, and Crashes (Oh My!)

So what will happen to the stock market? To answer that question we first have to establish what exactly we mean when we talk about an "end" to the rise of the stock market. Three terms are widely used when referring to drops in the stock market, and each applies to a different situation.

Correction: When the stock market falls by greater than 10 percent but less than 20 percent. Corrections are fairly common. From 1900 through 2016, a 10 percent or greater drop occurred once a year on average (Capital Research and Management Group - A History of Declines 1900 - December 2016).

Bear Market: The term used when the stock market falls by greater than 20 percent. Bear markets are less common than corrections, but still occur once every 3.5 years (Capital Research and Management Group - A History of Declines 1900 - December 2016).

Crash: There's no official threshold for this term, but it usually refers to an abrupt and unanticipated drop, say 10 percent or more in a short period of time. Crashes are much less common than corrections or bear markets. Since 1900, there have been three major crashes in the U.S. stock market:  the Crash of 1929 (-23 percent in two days), Black Monday in 1987 (-20 percent in a day), and the Crash of 2008-2009 (-20 percent within a week).

Given that it's been two years since the last correction and roughly eight years since the last bear market, we are clearly due for a market downdraft. But there's no sure way to determine when it will happen and what it will look like.

I like to keep in mind a quote about the stock market often attributed to noted American financier, John Pierpont Morgan. When asked what the stock market would do, he succinctly responded: "It will fluctuate." That's been true since it first opened and will continue to be true until it closes.


We’d all love to know when the market will drop. But history has proven that’s an impossible task. Your best bet is to accept that the market will go down at some point and invest accordingly. Keep in mind that despite corrections, bear markets, and crashes, the stock market has delivered phenomenal returns over time. In closing, here’s a quote from noted investor Peter Lynch:

Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.

David Crossman, CFA, is an Investment Manager with Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at bedelfinancial.com or email David.

  • Perspectives

    • Is Your Enterprise Ready For Digital Transformation?

      We are living in a historic era with accelerating market and technology disruptions that impact our lives and rapidly change how we do business. Cloud computing, advanced analytics, and digital technologies have the potential to transform how every company interacts with its customer. So, how do businesses keep up and (better yet) stay ahead? Enter the digital CIO. A new breed of CIO is emerging to lead companies through technology changes happening at record pace.



Company Name:
Confirm Email:
INside Edge
Morning Briefing
BigWigs & New Gigs
Life Sciences Indiana
Indiana Connections


  • Most Popular Stories

    • IDOE Names 'Four Star Schools'

      The Indiana Department of Education has released its list of Four Star Schools for the 2016-2017 academic year. The designation, which has been awarded for the past 30 years, aims to recognize great schools throughout the state. 

    • 'Best Places' in Indiana Reaches Record

      The Indiana Chamber of Commerce has released the 2018 list of Best Places to Work in Indiana. A record 125 companies are being honored this year and more than 50 are first-timers or returning after a year or more off the list. Employers in over two dozen communities are represented and the chamber will unveil the rankings of the Best Places honorees during a May 3 awards dinner at the Indiana Convention Center in downtown Indianapolis.

    • Knowledge Services Moves Ahead with Fishers HQ

      Knowledge Services has selected CitiMark Management Company, and American Structurepoint, to develop and build it's new headquarters in the Green Acres Technology Park in Fishers. Construction on the 80,000 square foot building, adjacent to Navient's headquarters, is set to be complete by the end of 2019, and will provide nearly 400 jobs by 2021.  

    • F&W Moving Engine Line From Mexico to Noble County

      Kendallville-based Flint & Walling Inc. is planning to on-shore some operations to Indiana. The Journal Gazette in Fort Wayne reports the manufacturer is shifting an engine production line from Mexico to Kendallville's former Superior Essex facility that it acquired a year ago. The publication says F&W is investing more than $5 million into renovations and equipment for small sump pump engines that will be used by its parent company, Louisville-based Zoeller Co.

    • Cummins to Design Combat Engines That Elude the Enemy

      The monstrous, larger-than-life military tanks of tomorrow could be powered by Hoosier ingenuity. A recent $47 million defense contract delivers marching orders for Columbus-based Cummins Inc.: develop the next-generation engine to power U.S. combat vehicles, and it must be stronger, but smaller, and elusive to enemies’ efforts to spot it.