Goldilocks or the 3 Bears - Major Crossroad for the Markets

There are two theories concerning the future of the economy. One theory could have a devastating impact on the stock market and the other would potentially just be a minor event.

Regardless of your opinion, the majority opinion is that the economy is slowing down. The question is how slow will it go?

There is the soft landing theory. This means that the economy is going to slow down just perfectly without any problems. This is the Goldilocks economy.

Then there is the hard landing. This means that things didn’t go so well and we end up in a recession. This would be the 3 Bears scenarios.

The Goldilocks economy is not much of a threat to the stock market. The hard landing scenario indicates a decline on the average of 30% or more in stocks creating a mean bear market. That is based on historical data.

You definitely want to be standing on the right side of the fence on this one. Keep in mind that out of the last 16 economic slowdowns, only 1 (1994) ended up being a soft landing. I would imagine that the majority were predicted to be the best case scenario. That seems to be status quo for most economists.

Today the question of Goldilocks and the 3 bears is extremely important. The stock market (as represented by the S&P 500) is at a major point. There is a good probability that this ends up being a major stopping point for the 4 year bull market. It is important to watch what the stock market does at this level. Depending on where this market heads over the next 3 to 4 months, it could be a predictor of either the Goldilocks or 3 Bears scenario.

The stock market is a great indicator of the future. Thus if the 3 bears scenario is in our future it should be reflected in the stock market before a recession occurs with a mean bear market. If the stock market continues to act well, then it would be potentially predicting a soft landing for the economy. This would indicate a continuation of a bull market that started back in October 2002.

The moral of the story is - Be Careful How you Eat Your Porage!