Last July, I wrote the following:

“Collectively, these factors [negative earnings/sales growth, widening credit spreads, flattening yield curve, weakness in cyclicals, etc.] point to an equity market that is increasingly fragile and in the past one that was about to become much more volatile. The response from market participants today: “no one cares.” Volatility is low, stocks are still acting like a 6-month CD, and monetary policy is easy.

All true, but investing is about the future, not the past. No one knows when the Minsky moment of this cycle will occur, but a necessary precursor is low volatility and the illusion of stability. Add fragility to the equation and you have a powder keg just waiting to explode.”

Fast forward to today and we have seen an explosion of some sorts. The S&P 500 has declined 15%, the Russell 2000 is down 26%, and high yield credit spreads are at their widest levels since October 2011. Sentiment has shifted 180 degrees.

All of the risk factors I was writing about last year are now being trumpeted by pundits who were telling you to buy with both hands at the market top. That requires a reevaluation for if market participants are now openly fearful of these risks and prices have adjusted, we will need additional negative factors to push markets lower.

More and more, this seems to be the consensus, that there will be nothing but negative news for the remainder of 2016. The same people who were sanguine about the economy and stocks with the S&P at all-time highs are now convinced we are on the verge of another global recession and bear market similar to 2000-02 and 2007-09.

If they are correct, the odds favor further declines. The average S&P 500 decline during a recession is 43%. With elevated valuations at the start of the decline last year (click here for my piece on this topic last March) such a drawdown would not be unreasonable.

But what if the U.S. doesn't enter a recession here? Yes, that is the question. Then the analysis becomes much more complicated. While there have been a number of bear markets without a recession (most recently in 2011), they tend to be shorter (average of 12 months) and shallower (average of 30%). With the median stock in the Russell 3000 already down 34% from its 52-week high, there's no guarantee of significant further losses even if this is a non-recessionary Bear Market.