US stocks could face “severe” bear market in a recession

The S&P 500 rose 0.5 percent last week, boosted by a 0.7 percent rise on Friday following strong bank earnings reports.

However, asset-management firm Guggenheim warned that the stock market faces a potentially severe bear market in the event of a recession.

“Given that valuations reached elevated levels in this cycle, we expect a severe equity bear market of 40–50 percent in the next recession, consistent with our previous analysis that pointed to low expected returns over the next 10 years,” Guggenheim said in a note last week.

In his April commentary, John Hussman had even more dire projections.

“If I were to offer a guess, I’d suggest that regardless of whether the S&P 500 registers fresh near-term highs, investors should allow for the S&P 500 to be perhaps -30% lower by the end of 2019, on the way to losing an additional -50% of its remaining value over the rest of the down-cycle,” he wrote.