As a bear market goes down, down, down month after month, fundamental analysts will begin to trot out the “evidence” that a market turn is around the bend—GDP is growing handsomely, earnings growth is just around the corner, Fed policy is accommodative, fiscal policy is out and out bullish, the technology spending cycle is turning for the better, valuations have now returned to reasonable levels, manufacturing is on the rebound, job losses have stabilized and job growth is beginning, etc., etc., etc.
These statements are nice to listen to. In fact, some will be indisputably true. But what most investors fail to realize is that none of the above reasons are necessarily consistent with market bottoms. Sure, sometimes, when valuations drop to a given level relative to interest rates, the market hits bottom and starts advancing ... but not always! And sometimes, when GDP grows at 4% or more, the market hits bottom and starts advancing ... but not always!
We’ve been students of the markets for decades now and have been publishing investment advice for more than 40 years. We study the market itself and have seen any and every type of bull and bear market the financial gods have to offer. And we’ve been able to use this experience to find three common traits that each and every bear market bottom has had in common. By following these guidelines, we’ve always been able to get on board relatively early in each new bull cycle.