Bottom line up top

• Investors continue to bear the burden of this down market. After entering the year on a hopeful note, U.S. stocks quickly reversed course in the first quarter and went from bad to worse in the second. The S&P 500 Index officially entered bear-market territory on June 13 by ending that day’s trading session more than 20% below the record high set in early January. All told, the first half of 2022 marked the S&P 500’s worst six months to start a year since 1962.
• Those looking to pinpoint exactly when the bear market will end should try a different tack. Just as we discourage investors from market timing in general, we also caution that it’s extremely difficult to predict the bottom of a bear market with a high degree of precision. Attempts to define a projected or hoped-for inflection point to guide specific investment decisions are likely to produce disappointing results. That said, we believe there’s value in analyzing current and historical data trends to inform our perspective on today’s bear market.
• Nuveen has developed a data-driven bear tracker for this purpose. There’s no crystal ball to foretell how long a bear market will last, or how low stock prices will go before they hit an inflection point. But it is possible to assess the likelihood that an end to the U.S. equity bear market may be imminent. The tracker allows us to do this by monitoring six key factors: valuations, earnings, Fed policy, manufacturing activity, market breadth and bond spreads. We explain our tracker's methodology, as well as our current assessment, in the following section.

“Just as we discourage investors from market timing in general, we also caution that it’s extremely difficult to predict the bottom of a bear market with a high degree of precision.”

Introducing our bear market tracker

The Nuveen Bear Tracker is a guide that informs our discussions and debate around the unique dynamics of the current U.S. equity bear market, how it compares to those in the past and when it might be close to bottoming. While not an exhaustive list, the six data variables we analyze (see table below) have frequently shown turning points near the bottom of past bear markets. The colors in the right column are assigned based on our view of whether each variable is signaling that we are close to a bottom (green), further away (red) or that the picture is mixed (yellow).

“For most investors, cash flow management, dollar-cost averaging and portfolio rebalancing are prudent bear market strategies.”

Based on these six variables, can we calculate an aggregate “score” quantifying how close we are to the end of the bear market (the higher the score, the more imminent the bottom)? If each variable carries equal significance, and we assign zero points to every red cell, one point to every green cell and half a point to every yellow cell, today's score would be two out of six possible points. That indicates the bear is unlikely to go into hibernation any time soon.

A numerical score can be a helpful input, and we expect the Bear Tracker to add value to our analysis throughout this market cycle. But the humbling task of calling the market bottom is just as much art as it is science – so a more qualitative approach is warranted to complement the tracker’s data monitoring.

For example, today’s bear market is driven primarily by high inflation and the Fed’s aggressive pace of tightening. Cooler inflation allowing at least a pause in Fed rate hikes would increase our optimism that the bear market is closer to ending, despite any other variables flashing red. Additionally, if the market has already bottomed without any drawdown in expected earnings, it would be the first such occurrence in any of the five bear markets going back to 2000.

For most investors, cash flow management to avoid being a forced seller, cash flow management, dollar-cost averaging and portfolio rebalancing are prudent bear market strategies.

Nuveen’s Global Investment Committee (GIC) brings together the most senior investors from across our platform of core and specialist capabilities, including all public and private markets.

Regular meetings of the GIC lead to published outlooks that offer:

• macro and asset class views that gain consensus among our investors
• insights from thematic “deep dive” discussions by the GIC and guest experts (markets, risk, geopolitics, demographics, etc.)
• guidance on how to turn our insights into action via regular commentary and communications