What does a bear market for the US equity market look like? Current conditions seem to fit the bill. The clues, after all, are piling up, including the early warning that’s still in progress via a relatively reliable quantitative tool—the Hidden Markov model (HMM). This is old news, of course, which means that it’s time to focus on early signs that the bear has run its course. Yes, it’s still early in the game on that score. But recognizing that the market’s bullish tide has probably turned leads to the obvious questions: What will a bottom look like and when will it arrive? No one really knows, but the toolkit that helped identify the start of a bear market will serve us well in the search for the seeds of a new bull market down the road.

Meantime, let’s review where we are via the prism of HMM (for design details, see this post; for its recent track record, see here). Recall that last October the case for calling a bear market in US stocks was signaled, according to this econometric lens. As I noted at the time, the data was “telling us that US equity trend (S&P 500) is in a bear market—a regime shift that started on Aug. 26 [, 2015] and remains in effect, according to this indicator.” I revisited the topic last month, and the numbers looked no less striking for arguing that downside risk was rising.

Fast forward to the here and now and HMM’s negative stance remains intact through yesterday, Feb. 4. The current estimate advises that there’s a near-certainty that a bear market is in progress. The 99.7% probability that we’ve hit regime shift head on is as decisive as this model can be. Peering into the future is always risky. But unless you can point to convincing quantitative evidence to the contrary, the HMM numbers paint a credible picture of the current trend. That doesn’t mean that prices will fall sharply or consistently. But there’s a new bias in town, according to this model, and so there’s a stronger case for adjusting risk exposures generally.