Make Sure You're Prepared for the Next Big Crash

Editor's note: The recent stock market sell-off led to a bearish extreme among investors. And according to Marc Chaikin, founder of our corporate affiliate Chaikin Analytics, now is a crucial time to start preparing for what comes next. As he explains in this piece – adapted from a recent issue of the Chaikin PowerFeed daily e-letter – regular investors suffer the most when markets fall...

Folks, you know by now that we're in a time of fear in the markets...

And during the Federal Reserve's meeting last week, Chair Jerome Powell made it clear that the central bank is worried about "stagflation."

Put simply, it looks like economic growth is slowing. Yet inflation is creeping back up toward 3%.

That makes today's market environment particularly dangerous. Specifically, inflation limits the Fed's ability to cut interest rates when the market weakens.

Still, Powell took a measured approach during the most recent Fed meeting, where rates were left unchanged. The smart money expects at least one rate cut by the end of the year.

The simple fact is that America is undergoing an economic and political realignment. And no one knows exactly how that will play out.

At the same time, investor sentiment has reached extreme levels... And that's a sign we should expect a reversal.

As Chaikin Analytics Editorial Director Vic Lederman explained to our Chaikin PowerFeed readers recently...

Retail investors aren't just feeling bad about the market. They think it's terrible.

That's clear when we look at the American Association of Individual Investors' ("AAII") Investor Sentiment Survey. Based on this measure, as of [March 12], slightly more than 59% of retail investors believed the market would fall over the next six months.

Respondents have felt mostly negative since the end of last month. In fact, for the first time in history, "bullish" sentiment came in at less than 20% for three straight weeks.

Now, the most recent AAII data shows "bearish" sentiment at 58% – right around the same level.

Again, that's an extreme. Sure enough, we're seeing the market begin to firm up.

The recent Fed meeting bolstered that. And the broad market S&P 500 Index has managed to stay above a key support level of 5,500.

Many people think this downturn will be the "big one." But that isn't the question to ask today. Instead, signs are pointing to something more concerning in the not-so-distant future...

Average Investors Suffer More When the Market Crashes

You see, the market is changing on a fundamental level.

Whether you succeed or fail in the coming months will come down to how well you're able to prepare for whatever comes next.

If this recent bout of volatility and correction has taught us anything, it's that investors are woefully unprepared for market downturns... even short-lived ones.

As such, I believe the great market crash could be much worse for investors than anyone is prepared for right now.

At this stage, it's impossible to know just how far stocks will fall when the moment arrives.

But what we do know is that whatever that total loss turns out to be... average investors are almost guaranteed to lose more.

This is an unfortunate, universal truth of investing in America. It has been that way for at least the past 30 years... and likely as long as I've been on Wall Street.

It doesn't matter what causes the crash... how long it lasts... or when the recovery begins...

Regular folks off Wall Street always suffer bigger losses in their own portfolios than the S&P 500 itself when the market crashes.

If you've been investing for more than a year or two, you've likely experienced this for yourself...

For example, many folks consider the 2022 bear market a decline rather than a crash.

That's because the S&P 500 "only" fell 24%... and quickly began to recover in the third quarter. It ended the year down "only" 18%.

In the history books, it will go down as a mild bear market.

But for the everyday investor actually feeling it in their portfolio, it was anything but mild...

When the 2022 bear market was at its worst, the average investor wasn't down 24%... but 44%. That's a huge difference.

And even as conditions began to improve near the end of the year, the average investor still ended the year down an estimated 21%... three percentage points below the S&P 500's return.

That's not a "mild market decline" in my books.

That's potentially one-fifth of your retirement. That's the kind of loss that requires you to have some serious conversations with your spouse and family.

So, where does that leave us? Well, it's time to start preparing for the shift that's unfolding.

That's why I'm going on camera tomorrow at 8 p.m. Eastern time to discuss it all...

This broadcast is free to attend. And just for showing up, I'll even give out two free recommendations to help protect your portfolio against severe downturns.

All you need to do is register in advance.

I look forward to seeing you there.

Good investing,

Marc Chaikin

Editor's note: Marc has called almost every market twist and turn of the past few years, including the 2020 and 2022 crashes. Now, he's sounding the alarm again. And during his online broadcast tomorrow night, he'll reveal the money move he says everyone should make immediately... Sign up here to learn how to protect yourself.