As my colleague Elliott Gue explained in How to Spot a Bear Market, US equities could pull back by 15 percent to 20 percent later this year—a correction that meets the technical definition of a bear market.
However, this pullback likely won’t be of the same magnitude as the implosion that occurred in fall 2008 and early 2009, when the credit crunch and financial crisis sent event shares of even the best companies plummeting lower.
For one, companies, governments and consumers have taken advantage of rock-bottom interest rates to strengthen balance sheets, push back maturities and cut costs.
The bear market has already ravaged the energy and natural-resources sectors, both of which have suffered from falling commodity prices. These trends are a double-edged sword for the global economy, providing consumers with a shot in the arm, but hitting energy-producing countries and regions hard.
Although we expect the US economy to benefit from lower oil prices, the benefits will be most pronounced among lower-income households.
Investors can take comfort that shares of strong dividend-paying companies historically have fared well during downturns. However, no stock is bear-proof unless its underlying business remains healthy. Fourth-quarter earnings season provides yet another opportunity to kick the tires on our Lifelong Income Portfolio holdings.