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Is it beginning to look a lot like a US bear market?

So much for a Santa rally in late 2018. The US stock market has been coping with wild price swings and heightened volatility since October.

In December, the market has been decelerating at an alarming rate and the historic rally that started in March of 2009 is looking exceedingly shaky.

Red Flags

Consider the following data points:

The Russell 2000 Index of small caps has fallen into a bear market, down 20%-plus from its recent high on August 31.

The S&P 500 is trading at a 14-month low. Also, three of the index’s 11 industry groups (materials, energy and financials) have dropped more than 20% from recent highs.

Other defensive sectors like health care, REITs and utilities are also getting pummeled.

As of Dec. 17, the S&P 500 is on track to post its second-worst performance on record.

Rising Bears

Fund manager DoubleLine Capital CEO Jeffrey Gundlach is already calling a bear market for the S&P relatively soon.

Goldman Sachs (GS) sees the US economy slowing to a crawl in 2019 as the stimulus impact of tax cuts and tighter monetary condition dampen growth.

While few see a recession next year, the odds will rise to more than 50% by 2021, according to a new investment outlook by BlackRock.

Then there’s uncertainty about the ongoing US-China trade war, various investigations of the Trump Administration and the outlook for the global economy.

Bright Spot

As we head into the final stretch, the Dow Jones Industrial Average and S&P 500 are off about 5% as of December 17.

The one bright spot are dividends. As the Wall Street Journal points out:

“Companies in the S&P 500 have spent nearly $421 billion on dividends through November, a record-setting sum that eclipsed last year’s mark of roughly $391 billion and the full-year tally of $420 billion, according to S&P Dow Jones Indices. More than two dozen companies announced additional dividend increases so far this month, which will push the year’s total even higher.”

Takeaway

In my opinion, America’s nine-year bull market is showing signs of stress and there’s a chance it may unwind in the coming weeks. It may be a good time to review your portfolio line-up and investing goals heading into 2019.

The current bull market has been one for the history books. But all good things come to an end.

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This material is from Interactive Advisors Asset Management and is being posted with Interactive Advisor Asset Management’s permission. The views expressed in this material are solely those of the author and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Xavier Brenner has covered global market, business and economic trends since 2013 for Interactive Advisors, a robo-advisor offering actively and passively managed portfolios and a division of the Interactive Brokers Group.

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