Bert Dohmen’s Wellington Letter warns that the recent wave of market selling is not a buying opportunity but the start of a bear market. According to the analysis, stocks are breaking through technical support on heavy volume, a pattern that often precedes more severe declines. The report characterizes the situation as a potential “liquidation bear market,” where forced selling and thinning liquidity accelerate downward moves.
The letter argues that headline economic data during the Biden administration have obscured an underlying economic slowdown. It suggests that once an official recession is acknowledged, large institutional investors may reallocate substantial portions of their portfolios from equities into bonds and other safer assets. That shift, combined with stretched equity valuations and diminished market liquidity, could intensify price drops rather than create attractive buying opportunities.
Given these conditions—overvalued stocks, heavy selling volume, and fragile liquidity—Dohmen counsels readers to steer clear of bargain hunting and to treat short-lived rallies with skepticism. Temporary bounces, the report says, are likely to be ephemeral in a market driven by widespread liquidation and a major reallocation of capital away from equities.
In short, the Wellington Letter’s view is precautionary: investors should prepare for a prolonged downside phase instead of assuming recent weakness is a chance to buy at discounted prices. The emphasis is on risk management and preserving capital while market structure and liquidity conditions remain unfavorable.