Are we heading into a bear market?

Many investors seem to think so.

According to analysis, there are three reasons we might avoid a bear market:

Market sentiment is largely bearish at this moment.

Stocks, real estate, and cryptocurrencies are all witnessing declines.

The Fear & Greed index highlights a prevailing sentiment of extreme fear.

This pervasive fear is understandable.

Uncertainties surrounding tariffs implemented by former President Trump are contributing to the turbulence.

Additionally, other geopolitical issues are causing discomfort for investors.

It’s important to note that we’ve been in a sustained bull market for nearly 2.5 years.

Some speculate that a bull market cannot last indefinitely—this is a common perception.

However, bear markets typically don’t end simply due to the passage of time. They usually conclude because of specific triggers:

1. Outrageously high valuations
2. Market euphoria
3. Changes in monetary policy

1. High Valuations

Historically, bull markets have stalled when asset valuations reach illogical heights.

This suggests a disconnect between current prices and the fundamental value of those assets.

Some argue this has occurred with certain AI stocks, but these instances have been limited and short-lived.

For example, Palantir’s performance in February could illustrate this point.

2. Euphoria in the Market

Bull markets are often derailed by market euphoria.

Consider the dot-com boom in 1999, the housing bubble in 2007, and the NFT craze in 2021.

During these times, investors exhibited blind optimism, leading to downfalls when reality set in.

However, the current environment shows extreme fear rather than euphoria.

The Fear & Greed index indicates there is little to no euphoric behavior across the markets today.

3. Monetary Policy Conditions

Are central banks sending any bearish signals?

In the U.S., high inflation persists despite a pause in interest rate adjustments.

This may seem somewhat bearish.

On a global scale, however, many governments are engaging in quantitative easing and lowering interest rates.

The U.S. has yet to initiate significant quantitative easing, a strategy it may need to adopt eventually.

Moreover, there are discussions among officials like Trump and Bessent regarding the need to reduce rates.

Unless faced with an unexpected severe geopolitical crisis, current conditions generally support the continuation of the bull market.

In fact, this could be merely a market correction before prices trend upwards.

Many analysts predict that 2025 will yield a strong market recovery, characterized by numerous green candle patterns.

Keep this in mind.

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