The volatility and losses over the last four weeks have been more severe than most imagined they would be. What started as the market “taking a breather” has morphed into very significant losses and a market teetering on the brink of returning to a bear market. Now a chorus of Wall Street analysts are saying something similar: this may indeed be the next phase of a bear market. Aside from the short-term warning sign of large investors taking profits, the long-term driver of the next phase of a bear market might be the rise of deflation. With so many workers losing their jobs, and automation taking over in many areas, deflation seems quite likely. If that happens, an extended bear market reaching into 2021 may take hold.
FINSUM + Magnifi: We don’t disagree that this selloff could worsen. We may even enter and stay in a bear market through the election, but a long-term deflation-driven bear market seems unlikely. The Fed is simply too active to let markets and the economy stay in a rut that long.
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