Updated news:

Bull vs Bear

Bear – index falls 20% from a recent high of 2 months

Bull – higher!

Bear vs Correction – 10% or more, quick lang. Can have a correction with a bear market (2018)

Recession – decline in GDP for 2 consecutive quarters (actual decline with goods and services), Bear ->
only stock index

REASONS:

1. Interest Rates are rising: in 2018, they hiked 4x (1.5% - 2.5%) (US), Canada increased 3x in 2018, More
countries are rolling back their lowered int. rates from the last global recession.

Higher govt int. rates = Higher corporate/retial int. rates = increase cost for business and discourage
growth. (Lower profit, misexpected earnings)

2. High corporate debt levels – Right now, 3x cash balance

Problems: 1. Companies who used debt to increase business will soon be tapped out

2. This compounds the issues cost by rising interest rates

3. High Valuation Levels – Bull market has gone too long, higher stock price may reach a level that is
unjustified *CAPE ratio/Shiller’s PE

Not a sure deal:

1. Companies may experience slowed earnings, some may redirect capital to paying of debt

2. Slowed down int. rate hikes

3. Looks only at S&P 500, CAPE Ratio, includes Global Financial Crisis

Current Yield Curve

Inverted Yield Curve

Turning points in Business Cycle

Flat yield curve:

1. Higher int rates from short term

2. Lower int rates from long term

Macroeconomic outlook
Outlook: Inflation to decrease or Fed to hike funds in the long term

Relationship of Inflation rate and Interest Rate

Direct relationship: Higher inflation rate = Higher interest Rate

Expectation: Price lent out means that lender will receive the same amount of money. (Value of money
in the future) Protection from inflation risk

Relationship between Supply and Demand and Interest Rates

Scenario 1: Fed prints more money and lends money

Supply curves shifts to the right, lowering interest rates

Scenario 2: Consumer savings go down

Supply curve shifts to the left, increasing interest rates

Scenario 3: Gov’t decides to borrow more money

Demand shifts to the right, increases interest rates

Summary:

1. Supply goes UP, Int. rates go DOWN

2. Demand goes UP, Int. rates go UP