Bayesian Analysis Suggests Moderate Bear Market Probability in Late 2025

According to PANews, as of 2025, the financial market has experienced fewer than four complete four-year cycles. Statistical caution is advised when drawing conclusions from such a small sample size. In predicting market cycles, a Bayesian probability approach suggests that the fourth quarter of 2025 (25Q4) may mirror the fourth quarter of 2019 (19Q4), offering more insight than the traditional four-year cycle theory. The Bayesian formula applied here is P(Bear Market | Stagflation to Recession) = [P(Bear Market) / P(Stagflation to Recession)] * P(Stagflation to Recession | Bear Market). Since 1929, the S&P 500 has experienced 27 bear markets, averaging one every 3.5 years, with an annual probability of about 28.6% and a quarterly probability of 15-20%. A conservative estimate places the probability of a bear market at approximately 18%. The probability of transitioning from stagflation to recession, based on historical data, is estimated at 40-50%, with a midpoint of 45%. This is derived from six instances of stagflation leading to recession over the past 50 years, with four resulting in recessions and two in soft landings. In bear markets, the likelihood of experiencing stagflation to recession is estimated at 33%. Historical bear markets are categorized into recessionary and non-recessionary types, with stagflation occurring in four of the twelve recessionary bear markets. Using Bayesian calculations, the probability of a bear market occurring in the context of stagflation transitioning to recession is approximately 13.2%. The analysis concludes that the probability of a bear market in late 2025 to early 2026 is around 15-20%, with a confidence interval ranging from 12% (optimistic) to 25% (pessimistic). The recommended strategy is tactical defense rather than strategic withdrawal.