The Fundamentals of the Economy Must Start a New Bull Market

During a terrible bear market like the one we are currently in, there are often multiple reasons for stocks doing so poorly. That is certainly the case this time, as trust in the financial system as a whole is low and consumers simply aren't able to spend much because of the terrible economic crisis. A recession, along with a bear market, is a very tough time to gauge exactly what is going to go on with the stock market and the economy as a whole. There are numerous people who try to make their best predictions, but only a few luck into looking very bright after the whole thing is over.

Many stock analysts and stock investors overthink the situation during a bear market and it can cause very painful results over the long run. How do they overthink things? One of the major things that analysts and investors do is put too much stock into the valuations of a company or the overall market during an economic recessions. The fact of the matter is that during a recession the stock market as a whole as well as individual stocks will often look very cheap, but continue to get even cheaper for quite some time. There are times when the calculations can lead you astray, and a bear market is one of those times.

How can the stock market possibly get out of a serious bear market? In the end it must be the fundamentals of the economy that drive the beginning of a new bull market. It isn't possible to build the base of a strong bull market during a time when consumers have no faith in the system and the jobless rate is jumping through the roof. As investors we need to all look for signs that the economy has begun to bottom and that maybe there is a light at the end of the tunnel after all. As the unemployment rate begins to settle back down and Americans feel better about their situation things will likely pick up, but until that happens any rally should be viewed with skepticism.

Let all of the pundits talk about what kind of ratio there is right now for the stock market and the economy, but continue to remember that you won't miss the new bull market if you simply pay attention to the fundamentals of the economy. There is no single ratio that will tell you when to buy stocks, but the overall economic patterns will guide you in the direction of understanding when it may be time to dip your toe in the water. Think more broadly and avoid making major mistakes that other investors often make.