The Stock Market is Going To Crash!
Okay, let’s slow down a little bit, I know the title is alarming but I think it does a good job of capturing the sentiment a lot of investors are feeling or at least thinking about. If you look at the volatility recently in the stock market it does not take a psychology degree to figure out that a lot of investors are fearful of a stock market crash.
So the real question is an easy one. Is the stock market in a crash right now? the simple answer to that is NO, but just for now. If you look at the US stock market as of writing is still up on the year, maybe not much at this point but still up on the year none the less.
Now the harder question to answer to answer is the stock market going to crash? and if it is WHEN?
Why All The Fear In The Market?
There are several reasons I think that fear in the market is peaking and leading people to think that a market crash is coming.
- End of the current financial cycle. As with all cycles, they go up and then have to come back down. The current business cycle has lasted longer than most, hence why people are thinking its end is nearing. also, the other indicators which I will list are also contributing to investors thinking this cycle is over.
- Inverted Yield Curve. The yield curve is the difference between U.S treasuries of different terms 2yr, 5yr, 10yr and 30yr. The yield curve inverts when the shorter term U.S Treasuries yield more than the long-term ones like the 30yr. The inversion of the yield curve has an excellent track record of predicting a recession, and once the curve inverts a recession usually follows within 6 to 24 months after.
The above two factors are for me the main reason why investors are so fearful and stocks are suffering. Now there are many other other factors that could also be weighing on some stocks and investors minds such as the price of oil and trade concerns between the USA and China. I don’t doubt these factors and others are also intertwined in this also but for me my understanding of them is basic and I would not be doing anyone any service by talking about them. Just know that there are other factors and forces at play, but the main two, in my opinion, are the ones I listed above.
When Will the Stock Market Crash?
The simple answer to this question. Nobody Knows!!! But the good news is that now that the yield curve has inverted we know it is going to be most likely within the next year.
Should I Be Scared Of A Stock Market Crash?
The answer to this depends on you. The question you need to ask is if the market crashes today would you be happy holding on to the companies in your portfolio. If the answer is no then you should maybe reevaluate your positions and maybe invest in companies that you would be happy to hold even in a market crash and recession.
For me, I have only one company in my portfolio that I would not want to hold through a correction as I do not think the company is in the best financial position to weather this without harm. The rest of the companies in my portfolio are solid in terms of management and financials, and in the last recessions continued to run smoothly and continued to pay their dividend and some even increased their dividend payout.
Basically, you should be somewhat welcoming of a market correction or crash. You should see it as a buying opportunity, an opportunity to buy more shares of companies you like or already have positions in at cheap or discounted prices. Will the value of your portfolio of stocks lose a lot of value if the market crashes, absolutely! However, you should be comforted by knowing that historically the market has always recovered and reached new highs over time. So relax take a breath and start preparing NOW! for the inevitable crash.
Like the boy scouts motto “always be prepared” if you are prepared it helps to take the fear and irrational thoughts out of the equation and will help you make better more rational decisions. Making better decisions, ones that are free from emotion and irrational fear is the only way to deal with the coming crash. Let the unprepared investors make all of the irrational and fearful choices, while you sit back and make wise, rational and sound financial decisions.
This is not financial advice and all financial investments carry risks. Investors should seek financial advice from professionals before making any investment or financial decision. I wrote this article myself and it expresses my opinions. I currently do not hold any positions in the stocks mentioned in the above article.