This is the big question being asked and my point would be to not have too strong an opinion of the answer, rather gain some perspective about probabilities and potential gains/losses in each scenario.
As a rule of thumb (and this can vary if you use data since around 1929 or maybe go back to late 1800s), a bear market on average lasts about a year or maybe a month or two longer. The average loss you are probably looking at is 30% from peak, this being the US market but similar stats are for the ASX.
As this bull market is extremely long in the tooth, likewise historically is the current US expansion, I really do not want to bet strongly that we are only experiencing a correction as many feel comfortable with now. Though I acknowledge about more than 60% of the time a 10% correction does not result in a bear market, but rather continues to march higher. The length of the bull market, high valuations and terrible market breadth in the US lead me to feel the chances of this being a bear market are probably greater than 50%. If I am wrong as I have mentioned I am not making huge bets and going 100% cash on this hunch, it is rather a reason to continue to hold some moderately more cash than my set allocations and more “low beta” style investments. If the market reaches new highs this year hopefully with good stock selection I can still perform anyway. Geoff Wilson’s funds are a good example in Australia that running a high cash balance does not have to equal underperformance in a bull market. It can result in much less volatility, less drawdowns and an overall peace of mind that produces better decision making.
The above leads me to be well prepared if it is a bear market. With many indices topping out in May last year, on average that could indicate a bottoming out in July with declines potentially close to 30% off the peak. This would lead me to aggressive buying. Even more aggressive buying if losses were above 35%. The stats I examined in late 2008 showed fantastic returns buying in that scenario with virtually no exceptions. One exception would be perhaps the Nikkei in the early 1990s but that is why I always advocate diversification across the globe such that you would never get hit by a country specific secular downtrend like Japan. Also a good example why many Australians mix of store of wealth (large Aust principal residence, another investment property, portfolio of bank shares perhaps with WOW, TLS and throw in the big or not so big now Australian BHP, then having zero foreign currency exposure) is an unnecessary huge bet on the Australian economy. If Australian unemployment spikes and they lose their job how is their wealth going to look and protect them in that environment? But I digress!
Back to the indices. Another good buying signal is if we continue lower until October. That would make a potential bear market long in the tooth, and lead into a strong seasonal bias that has existed the last century with a large majority of returns all occurring in the half between November-May.
After all that ramble I should add I still continue to believe stock picking is more important in my approach and ideally I am trying to find investments that can produce alpha by perhaps shareholder activism that is independent of the macro backdrop.