Entering text into the input field will update the search result below

'Bear Market' Series Part 2: Next Recession Will Be Mild, Not Wild


  • Bear markets are a healthy cleansing process that removes the excesses of the past.
  • This is the second part of a series of articles on this subject.
  • The objective is to educate investors on how to spot a "bear market,” what to do in such an eventuality, and possibly benefit from it.
  • Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Get started today »

Co-produced with Trapping Value

Bear markets can be very devastating if they catch you off guard.

This is part 2 of a series of articles we are writing about this subject. In the first part of this series we explained why the possibilities of a bear market are growing and why the final top may be close. We went through three major indicators that suggest that the business cycle could be peaking and turning and the final top might arrive within 12 to 24 months. If you did not have a chance to read Part 1 of this series, this is the link:

'Bear Market' Part 1: Why We Think We're Getting Close

In this part, we will focus on why the upcoming recession is likely to be mild. In later parts we will focus on:

  • Why bear markets are necessary and what the average investor can do to prepare (Part 3 of this series).
  • We also will calculate returns that the standard 60:40 strategy is likely to deliver at that point (Part 4).
  • Finally, we will identify a few asset classes (Parts 5 and 6) that will beat the living daylights out of the indices.

A quick recap of part 1 and updates

The case for the bear market and possible recession was based on three major factors. A downturn in the leading economic indicators, a model-based forward-looking employment indicator and an inverted yield curve. While individually they are moderately strong signals, together they represent a powerhouse of forecasting strength. Since then, we have delved further into the situation and have noted a vast majority of indicators that suggest a very serious slowdown somewhere between the second and third quarters of this year.

One additional indicator we want to point to is in our opinion perhaps the best

High Dividend Opportunities, #1 On Seeking Alpha

HDO is the largest and most exciting community of income investors and retirees with over +4000 members. We are looking for more members to join our lively group and get 20% off their first year! Our Immediate Income Methodgenerates strong returns, regardless of market volatility, making retirement investing less stressful, simple and straightforward.

Invest with the Best! Join us to get instant-access to our model portfolio targeting 9-10% yield, our preferred stock and Bond portfolio, and income tracking tools. Don't miss out on the Power of DividendsStart your free two-week trial today!

This article was written by

Rida Morwa profile picture

Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991.

Rida Morwa leads the investing group Learn More.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (95)

Another indicator of coming recession is the sale of pizza. When fear increases, people conserve their money by eating out less, buy pizzas, buy off brand products, etc. We are seeing Domino Pizza sales going up. I do not worry about the recession because my stock are depressed even when the market moved higher. Example is the energy sector.
MAYHAWK profile picture
Frankly, I will continue to live my life just the same. Common sense precautions to avoid getting sick are still the best way to deal with this. The media will lurch from crisis to crisis, this is what they do. Far more people died of the flu yesterday than CV-19 but we hear nothing about them because it doesn't fit the hysteria narrative. As Jim Morrison said "No one here gets out alive". Might as well enjoy life while I can and leave the sky screamers to their own devices. I will continue collect my dividends, grab a few bargains and go about my life as usual, including travel.
Rida and the HDO crew, your articles are very informative and helpful in educating myself and no doubt countless others.
Looking forward more.
Thanks to all of you at HDO!
Williams Bay Analytics profile picture
"Finally, we will identify a few asset classes (Parts 5 and 6) that will beat the living daylights out of the indices."

Wow. I simply can't wait.
Trapping Value profile picture
You will be excluded from the mailing list.
starcorral profile picture
What bear market? There is no substantive misalignment or imbalance beyond which there might be a cascading loss of value. Let's not confuse "overbought" with recession.

An adjustment is not a recession.

Coronavirus - COVID-19 - is a worry. I'm 67. If I get it chances are it will make me less productive for a week or two just like other flu type viruses. It's symptoms are mostly mild while contagion is unusually high. Right now mortality is based on labeled cases and does not include all the cases that are apparently mistaken for something else. The virus will hurt productivity,

Biden Sanders Bloomberg. One has the qualities necessary to lead; another has diminished capacity, and the third considers self sufficiency a badge of evil acts and intent.

We'll get past it - injured yes - but not as diminished as the short mongers would wish. There is no recession in sight - only an opportunity to spin facts into selling misery for a high price and buying back normalcy on the cheap.

Me? Common sense trumps wishful thinking and artful lies.
Human behavior makes bear markets worse. The old adage is when your neighbor is out of work it is a recession; when you are out of work it is a depression.

If we the media is reporting on the daily layoffs it tends to negatively affect to consumer. The consumer will pull in his/her horns and that tends to lead to a bear market that is darker and deeper.

On the other hand, employers have to carefully consider letting workers go they may never get back because of the labor shortage.

After the great recession began, here In Las Vegas we lost so many trades workers who moved to other states there was significant delays in new home building when things got much better. Today we are still woefully short of electricians and plumbers for the every day needs of existing homeowners.

As for today's virus crisis the key is when China can get the workers back in place and supply chains restarted. I think it will be faster than the market is calculating and worse case is two difficult quarters of earnings.

American businesses, small and big, will have to learn from this experience and decide whether they need more capital to carry more inventory to get thru potential future problems and while it is nice to say the solution is to move more manufacturing out of China.... Vietnam, Singapore, Taiwan..... and the other countries in that part of the world cannot possibly build up the infrastructure and do not have the population to take on more manufacturing. In Vietnam they are rapidly building out deep water ports to take in the big ships but that will enable Vietnam a few years from now BUT their workers' productivity AND skills are nowhere near China right now.

Betting that a bear market will be mild because of consumers in the US may be mistaken.

Human behavior...... yesterday I was at Costco and EVERYONE was coming out with massive amounts of bottled water in carts. Families with multiple carts of water. Costco was ready because they had enormous amounts of bottled water in the far corner of this Costco.

Fear of the current virus is scaring everyone and yet we do not have a single case of the virus in Nevada. Fear of consumers could make a deeper bear market.... look at what is happening now.
Fears kills. You mentioned people buying bottled water. They should also load toilet papers because during recession, pizza sales go up resulting in a lot more restroom visits. I read layoffs happening and that is a sign of impending recession.
Medicine is always bitter and taste terrible at first. The first test we have to seek is if China gets back to work? Population levels appears to be increasing in the East and Central area (https://aqicn.org/map/china/) but it is still well below normal. (assuming we can trust the data being reported by these stations). Foxxcon is the first to make claim they will be at normal operations by the end of the month. Unfortunately Apple is reports on 4/28/20 and they already warned, so we not not get anything useful between now and the end of next month. We also need to see if South Korea and Italy has any supply chain problems. The best case is earning get slammed this Quarter. But I suspect we see two quarters of bad earnings. If no plant and school closures in the US, then we avoid a recession. Right now this has been limited to airlines, hotels, and shipping.
HH balance sheets could get a dirsruption if the workforce is dislocated for any extended period of time. This would be in consideration of Covid-19 closing sectors of the economy such as brick and mrotar, large gathering events, restaurants.

We live in a service economy and all jobs allow one to work from home.
54andout profile picture

Thanks for another great article. Looking forward to part 3!
Rida, this is an excellent series with good data. I see you have revised your opinion on the possible timing of a recession being rather nearer than a year out. Thanks for sharing this data with us. -w.
OMG....NO ONE has a crystal ball...anything can and will happen at any time under any circumstances. Invest accordingly. Get a grip people.
I took opportunity to pull out about 20% of my portfolio into cash today when stocks went up initially due to rate cut news. While drugs eventually may treat the virus, my calculations show this virus has a fatality rate of about 6.7% when you divide deaths by recovered. That is somewhat alarming to me.
PendragonY profile picture

That calculation leaves out many of those with a mild case that are never identified and recover.
Rida Morwa profile picture
Actually the fatality rate is less than 4% and that is not taking into account all those with mild cases and have recovered already:


So I would think that the fatality rate is less than 1%.
I see. I guess it isn't as bad as I calculated. The WHO is saying about 3.4%.
Rylan D profile picture
Rida, your articles alone are worth the cost of subscription. Thank you for your guidance in these rough seas.
Rida Morwa profile picture
@Rylan D , Thanks for the kind note, and glad to have you with us at "High Dividend Opportunities"

All the best, Rida
mhfnet profile picture
Good article but there was not even a mention on what inflation could do? I think the depth of the next recession hinges mainly on inflation and what the fed will have to do to rates to tame it down? If the fed rate has to go up even a few percent it will have devastating effects on the corporate debt and real value of the stock market. People thinking that inflation is not getting worse only have to look at there own spending. If it wasn't for investment income my bank account sure wouldn't be rising because my wages are certainly not keeping up with inflation and basic living expenses and from what I read about wage growth that seems to be a common story!
The world economy depends on spenders not savers. If people are not spending, the economy is going into the toilet for the time being. Its that simple. The recession is here today - the FED just said as much with their nonsense rate cut which is the equivalent of grasping at straws.
Investor since ‘73 profile picture
Drewworm, you just hit the nail on it’s head, exactly why giving the already wealthy yet another tax break never stimulates the economy. They haven’t been putting off that new pickup or fridge, they already have plenty of everything they can imagine. Their tax break winds up in an offshore account that will benefit their great grandchildren. As Will Rogers famously said, “if you give the money to a poor person, the rich guy will have that money by nightfall but at least it will have passed thru the poor guy’s hands.”
Rida Morwa profile picture
@Drewworm , Thanks for your comment. The Fed cut rates NOT because we are in a recession, but to encourage banks to lend money. Thinking of a recession at this point is speculation. No offence.
Nathan Gallo profile picture
@Drewworm That's the doctrine pumped out. Spend as much as possible, who cares about national debts as long as GDP goes up.

People confuse saving with hoarding. If I bury all my money in my backyard sure I'm not helping the economy at all. Saving results in high quality capital goods which is a truer and healthier stimulus of the economy.

Constant spending and government debt ramps up inflation and discourages saving (pretty much every government policy since the great depression) this diverts money from productive activities and shrinks the production flow. Saving allows a higher level of economic growth
Investor since ‘73 profile picture
I believe it’s way too early to imagine how deep this coming recession will be. The virus may not prove to be all that bad but we do know that it has already brought China to a halt, empty roads, deserted city streets/restaurants/factories and auto sales down well over 90%. We know that Germany, much of Europe and Japan were already clinging to flat line growth and that here in the US, despite $2 Trillion of new debt having been used to stimulate our economy, we were already barely clinging on to 2% growth and that only if you actually believe anything coming out of this administration. We know that airlines and cruise lines are being crushed. On and on it goes and we are just at the start of all this, no end in sight. The government here in the US, gutted of scientists and anyone bold enough to speak the truth, has already proven to be way behind the curve. I hope that this gross incompetence and willingness to lie to please the vindictive boss will not result in a great number of deaths but there has already had a real effect on our economy that even the toadies of this administration can not deny. Maybe this recession will be mild and not wild but no one can seriously predict the outcome today. Me? I think I will keep my powder dry for a while and watch what happens before I get serious about putting my cash back to work. I did buy a little slice of AUY last week and sure am glad I had 20% in PM stocks going into this.
Rida Morwa profile picture
@Investor since ‘73 Have a good cash pile for when the recovery occurs is a good plan.
Thank you Rida for all you do. Given all the ups and downs lately, just what percent do you recommend we have in fixed, and how much in cash?
ANOTHER excellent penned article. Thank you!
This virus might hit the United states pretty hard,Doesnt sound like cdc or hospitals are ready for the virus,Last thing i heard is the cdc right test for virus
ScottsIncome profile picture
Are you surprised at how much the PIMCO funds dropped with this correction. At one time almost double.
Rida Morwa profile picture
@ScottsIncome many sectors of the market have blindly been sold off over fear vs economic factors.
And, of course, the nasty drops have nothing to do with the absurd premiums they carried -- which, ahem, a certain author hereabouts, has told us are insignificant.
SPXS or SPXL profile picture
There does seem to be a lot of pent up demand and after the virus scare is over, the Fed will quickly retract the .5% interest rate cut. At that point interest rate increases will start and the S&P will be near 4000. A couple of rate increases will tip the S&P back down to the 3700-3800 level. Short term, specifically Wednesday after Super Tuesday, we'll get another leg down.
Trapping Value profile picture
That is a very specific timeline. Time-travelling lately?
SPXS or SPXL profile picture
No obviously not time travel since we're pointed higher today. I thought Sanders would win more more Super Tuesday primaries and drop today, but the market is still at risk of a leg down if his showing improves.
You make a very good point, often overlooked, that the stock market and the economy are not the same thing. For example that very mild recession of 2001 had a very major effect on the stock market.
For example, we can possibly mitigate the effect of the corona virus on the stock market by cutting interest rates, but that won't touch its effect on the economy. We can hope that it is minor but hope may not be a cure.
Rida Morwa profile picture
@glinsight I suspect the virus worries will subside in the warmer months, if they have not long before that.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.