Has a Bear Market Ever Started Without the Fed?
Among the warning signs investors track, one has a record unlike the others: Milton Berg says no major bear market has ever begun without the Federal Reserve tightening first. It is a useful filter — and, as he is careful to note, not a guarantee.
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The precondition
Most bearish arguments are lists of worries: valuation, concentration, leverage, politics. Each is real and none of them tells you when. Berg offers something with a harder edge — a condition that has been present at the start of every major decline.
No major bear market, he says, has ever occurred without a Federal Reserve rate rise. Not one.
The value of a claim like that is not that it forecasts anything. It is that it narrows what you have to worry about. If the condition is absent, the most frightening scenario on the board has no historical precedent — which is not the same as impossible, but is a long way from likely.
The old rule about the second hike
There is a refinement he credits to Edson Gould, one of the technicians whose work shaped his own: the market does not peak on the first Fed rate rise. It takes two.
The intuition is that a single increase is read as confidence — the economy is strong enough to take it. The second signals a central bank that intends to keep going, and it is the intention rather than the increment that changes how markets price risk.
Berg is honest that the rule has lost some of its edge: it does not work as well as it did. He offers it as a piece of market history worth knowing rather than a mechanism to trade, which is the right way to hold a rule of thumb with a small sample.
The example almost everyone gets backwards
Ask an investor for proof that Fed tightening causes bear markets and most will reach for 2022. Berg argues it shows something close to the opposite, and the sequence is a matter of record rather than interpretation.
- The decline began in January 2022, when Russia moved against Ukraine — before the Fed had tightened at all.
- The Fed did not begin raising rates until May, months into the fall.
- The Russell 2000 bottomed in June, the same month the Fed turned aggressive with a 75 basis-point increase.
- The S&P 500 bottomed in October and tested that low within about 3% of the June level — and from there the market rose while the Fed carried on tightening.
So the bear market started before the tightening and ended during it. Anyone who used Fed policy as their timing device in 2022 was late getting out and late getting back in.
Berg adds the coda that is easy to forget: the widely predicted recession did not arrive. Economists pointed at the inverted yield curve and called for one; his firm read the market's own behavior, judged that it had bottomed in June and tested in October, and argued for buying. The market was the better witness than the forecast.
What the condition says now
As he described the position in the summer of 2026, the Fed had not yet tightened — which is one of the reasons he was unwilling to call a top, despite being able to list the bearish evidence himself: extreme valuation by several measures, margin debt relative to cash at its most stretched on record, exhaustion gaps and reversals at the June highs in the technology indexes.
He expects the next Fed move to be a tightening one, and rate rises to be forced rather than chosen. But he draws the line where the evidence stops. Asked whether the market could crash in the months ahead, his answer was that he could not prove it wrong — only that he did not yet have the evidence, and that the evidence would come later if it were going to come at all.
How to use a precondition without abusing it
The temptation with a rule this clean is to invert it: no tightening, therefore safe. That is not what it says, and treating it that way would be the expensive mistake.
It is a filter, not a signal. It tells you which of the frightening stories has a historical basis; it does not tell you when to act, and it will not protect you from the decline that begins for a reason nobody has cataloged yet. Berg's own use of it is characteristically narrow — one input among many, feeding a stance he will abandon the moment the data turns.
Which returns to the discipline the rest of his work rests on. You do not need to know in advance what will start the next bear market. You need a rule that gets you out of the way once one is underway, and — the half that actually earns its keep — a tested signal that puts you back in near the low. That is what the MB Edge model is for, and why it makes no attempt to identify the top the way it identifies the bottom.
Watch the full conversation
The discussion of Fed policy and bear-market conditions runs through Milton Berg's August 2026 interview with Jack Farley on Monetary Matters.
Frequently asked questions
Has a major bear market ever started without Fed tightening?
According to Milton Berg, no — he says no major bear market has occurred without a Federal Reserve rate rise. He treats it as a filter on which bearish scenarios have historical precedent rather than as a timing signal, and is explicit that an absent precondition is not a guarantee of safety.
What is the two-rate-rise rule?
An observation Berg credits to the technician Edson Gould: the market does not peak until the Federal Reserve has raised rates twice, because a single rise reads as confidence while the second signals intent to keep going. Berg notes it works less well than it used to and offers it as history rather than a trading rule.
Did Fed tightening cause the 2022 bear market?
Berg argues the sequence says otherwise. The decline began in January 2022 with the invasion of Ukraine, before any tightening; the Fed first raised rates in May; the Russell 2000 bottomed in June as the Fed turned aggressive; and the S&P 500 bottomed in October and then rose while tightening continued. The widely forecast recession did not arrive.
This article draws on Milton Berg's August 2026 interview with Jack Farley on Monetary Matters, and on his July 2026 interview with David Lin. Quotations are Berg's own words.
MB Edge publishes a long term hypothetical model. Any model performance referenced in this article is hypothetical and backtested, does not represent actual trading in any client account, and is not a guarantee of future results. This article is educational commentary only — it is not individualized investment advice or a recommendation to buy or sell any security.
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