The current bull market is 3,453 days old, which is a record. It will end, but when? And how bad will the sell-off be? The market improvement could come to a close in several ways, but two stand out.

Some market runs turn down softly, like in 2002 and 2003. Gross domestic product (GDP) growth moderated modestly. By 2005, the market had reached it 2002 peak again. Many people and institutions lost money. However, it was not a period of panic that wiped out personal savings and institutional balance sheets. There were no major pieces of bad economic or political news. The adjustment was a “normal” reset to a market rise.

At the other end of the spectrum, the sell-off immediately before the current bull market was part of a wreck of the U.S. economy that was nearly unprecedented. The Dow Jones industrial average was over 13,000 in late 2007. By March 2009, it had dropped under 7,000. The current bull market is a recovery from that bottom.

The economy today is strong by almost any measure. Inflation is low. Employment is full. GDP is rising at a rate that is occasionally over 3%. Consumer spending is strong. The real estate market is going through one of its best periods in years. However, a sitting president is in severe political and perhaps legal trouble. Sovereign debt problems in Turkey could spread to Europe’s large banks, and perhaps beyond. A vocal group of economists and trade experts believes that current tariffs and those that have been proposed may bring economic growth in the United States and some of its trade partners to an end and perhaps cause a new recession. Sectors of the market that rely on the strength of international trade already have started to sell off.

It is unimaginable that, after year upon year of market improvement, a sell-off of 20% to 40% is possible. That point of view leaves out a vicious market drop less than a decade ago. The financial crisis that caused it may not be like the next crisis. However, a trade war or a sovereign debt default may have consequences just as serious, and ones that will hit the economy just as rapidly as at the start of the Great Recession.

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