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Is this the start of a bear market? After an exceptionally strong year in markets, volatility has struck back in recent days. 1 Many of our clients are asking us if this is the start of a bear market. Bear markets are almost always caused by a decline in the real economy.
January employment report surprised to the upside and touched its highest level since 2009. 2 This pushed the 10-year U. Treasury yield up to its highest level in four years. 3 Higher discount rates are proving to be a challenge to the elevated valuation levels of U. Second, investor sentiment has taken a hit—market psychology was bordering on euphoria in late January and is coming back down to earth now.
For example, the share of respondents expecting stock prices to increase in the Conference Board’s Consumer Confidence Survey4 hit an all-time high in January. Our research teams have also pointed to evidence that a lot of the selling activity has been driven by technical reversals in trend-following strategies. Economic and earnings fundamentals, by contrast, are actually quite robust at the moment. 5 And the fourth quarter corporate earnings season in the U. Bottom line: We will continue to monitor economic and market conditions carefully in the coming days.
But for the time being, this looks like a healthy correction in markets, rather than the onset of a bear market. Depending on the depth of the dip that we see in asset prices, this selloff could create an attractive entry point for investors to take more risk. We believe recent events highlight the importance of a diversified, multi-asset investment strategy. Even with the latest selloff, valuations on U.