Here’s a blog-style analysis of the recent claim that the U.S. stock market could be heading toward what might become “the biggest bear market since 1929”. The headline comes from a recent article in Morningstar, Inc. / other commentary. (The Economic Times)
Headline claim: what’s being said
According to the cited report, the U.S. stock‐market is in a position where it could face a bear market as large (or nearly as large) as that following the Wall Street Crash of 1929. (The Economic Times) Some of the flags raised:
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Market valuation levels are elevated (for example, mentions of the Warren Buffett Indicator and the Robert Shiller CAPE ratio being near historically high levels). (Nasdaq)
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A combination of weaker economic fundamentals, high corporate and sovereign debt burdens, reduced policy tools (e.g., interest-rate cuts may be constrained), and heightened global uncertainty. (The Economic Times)
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Speculation and “bubble‐like” behaviour in parts of the market (e.g., technology, AI investments) being likened to the Roaring Twenties before 1929. (MarketWatch)
Thus: the claim is not a certainty but a “could be” scenario — a warning signal rather than a forecast with timetable.
What would a “bear market since 1929” mean?
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The 1929 crash and ensuing Great Depression included a drop of around 80-90% in some major U.S. stock indices from peak to trough. (Wikipedia)
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In modern usage, a “bear market” is commonly defined as a drop of at least 20% from recent highs. (Hartford Funds)
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So the phrase “biggest bear market since 1929” suggests something far larger than the typical ~20-30% drop — more like a very deep slump.
Why some analysts are sounding the alarm
Here are some of the underlying concerns being flagged:
1. Elevated valuation metrics
As noted above: the Buffett Indicator (market cap / GDP) is at very high levels and the CAPE ratio is near its second-highest level ever. (Nasdaq) Historically, many big downturns followed such elevated valuations.
2. Leverage, debt and liquidity risk
When debt levels (corporate, household, government) are high, a shock to earnings, interest rates or growth can lead to steep declines as companies and investors may be less resilient. The Moody’s, etc., point to this. The 1929 era likewise had lots of margin debt, speculation, weak regulation.
3. Economic / policy constraints
Some argue that monetary policy has fewer “easy” options now (after many years of low rates and excess liquidity) — so in a downturn, policy response may be less effective. Also global growth is slowing, trade tensions remain, geopolitical risk is elevated. The report mentions that. (The Economic Times)
4. Speculative excess & regulatory risk
The argument: certain segments of the market show speculative behaviour (e.g., in AI, high growth stocks) reminiscent of earlier bubbles. Some regulatory protections have been weakened, potentially raising systemic risk. (MarketWatch)
Why this doesn’t guarantee a repeat of 1929
While the alarm bells are real, there are reasons to caution against assuming a direct repeat of the 1929 scenario:
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Economic structure is very different now: financial systems, central banks, regulation, social safety nets, global diversification — all are more mature than in 1929.
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Bear markets of severe magnitude (50 %+ declines) are rare; most bear markets are in the 20-40 % decline range. (Hartford Funds)
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Timing is extremely difficult: even if valuations are high, markets often stay high for longer than expected (“this time may be different” is a dangerous phrase). The report itself acknowledges it is a warning, not a forecast.
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Recovery dynamics: historic bear markets ended, and over the long term markets rose again. The article from Advisor Perspectives shows how various “bad bears” in the U.S. have had different recoveries. (Advisor Perspectives)
So what might happen — scenarios
Here are a few possible paths, given the warnings:
| Scenario | Key driver | Outcome |
|---|---|---|
| Soft landing / mild correction | Valuations moderate, economy holds up, policy nimble | Market may drop 20-30%, then stabilise & recover |
| Deep bear | Economic shock / policy surprise / debt crisis triggers serious drop | Market drops 40-60%+ over one or more years |
| Full‐blown crisis (worst-case) | Multiple shocks (banking, credit, sovereign) converge | Market drops 70-90% (closest to 1929 scale) — but this is less probable given modern buffers |
The report we started with is essentially flagging the red zone: that we cannot dismiss the “deep bear” possibility, given current risk accumulations.
What should investors think about / do?
Given this analysis, here are some suggestions (not tailored financial advice, just considerations):
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Check portfolio risk tolerance: If you cannot stomach large drawdowns, consider hedging or reducing exposure to the most vulnerable parts of the market.
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Diversification is key: A heavily concentrated portfolio is more at risk in a deep downturn.
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Focus on quality and fundamentals: In a severe bear market, lower‐quality companies tend to suffer most.
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Consider time horizon: If you are investing with a long horizon (10+ years), you may view market dips as opportunity rather than danger.
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Avoid “timing” the market based purely on valuation: While high valuations raise risk, markets can stay elevated; waiting for a crash may mean missing upside.
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Stay informed: Monitor macro signals — e.g., credit spreads widening, earnings weakening, policy pivoting — as early warning signs.
Final thoughts
The claim that the U.S. stock market could be heading toward its “biggest bear market since 1929” is dramatic, but it serves a useful function: to remind investors that elevated valuations + structural risks ≠ immunity. It doesn’t mean the crash is inevitable, nor does it mean a repeat of 1929 is locked in. But it does suggest that complacency may be risky.
In other words: markets are not guaranteed to roll over tomorrow, but the margin of safety may be thinner than many assume. For prudent investors, viewing this as a caution signal — not a panic alarm — is probably the right mindset.
If you like, I can pull together data visuals (valuation charts, debt levels, historic bear-market comparisons) to accompany this blog and make it richer. Would you like me to do that?
