Make Sure You're Prepared for the Next Big Crash
Editor's note: Amid all the uncertainty in the markets, it's critical to make sure you're positioned for whatever happens next...
That's the message from Marc Chaikin – the founder of our corporate affiliate Chaikin Analytics. As he says, investors are "woefully unprepared" for big market downturns.
In today's Masters Series, adapted from the March 24 issue of the free Chaikin PowerFeed e-letter, Marc explains that the next big crash could be much worse for regular folks than anyone is prepared for right now...
Make Sure You're Prepared for the Next Big Crash
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 Fed's meeting last week. The Fed left rates unchanged. And the "smart money" expects a 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.
Regular PowerFeed readers will recall that my colleague Vic Lederman discussed this earlier this month. As he noted in the March 20 edition of the PowerFeed...
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 last week, 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.
And now, the most recent AAII data shows "bearish" sentiment at 52% – not far from the same level.
Again, that's an extreme. And we're seeing the market begin to firm up.
The recent Fed meeting bolstered that. And the broad market S&P 500 Index managed to stay just above a key support level of 5,500.
So a lot of people are starting to think that this downturn will be the "big one." But signs are pointing to something more concerning in the not-so-distant future...
You see, the market is changing on a fundamental level.
And whether you're able to succeed or fail in the coming months will come down to how 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. It doesn't matter how long it lasts... or when stocks begin to recover.
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 invested for more than a year or two, you've likely experienced this for yourself...
For example, the 2022 bear market. Many folks would consider it a decline, rather than a crash.
That's because the S&P 500 "only" fell a maximum of 24%... and quickly began to recover in the third quarter, ending 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 was down not 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%... while the S&P 500 finished down 18%.
That's not a "mild market decline" in my books.
That's 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?
As an investor, it's still your job to make sure you're well positioned for whatever happens next.
That's exactly why I created my Power Gauge system...
Using this powerful tool, you can avoid the most dangerous areas of the market. And with custom alerts, you can also receive updates about your most important positions. Plus, you can use the system to identify buying opportunities no matter what's happening in the markets.
Remember, having a plan in place could be the difference between securing great returns and suffering financial ruin. So I encourage you to begin preparing now...
Good investing,
Marc Chaikin
Editor's note: It's time to start getting ready for a shift that Marc sees unfolding in the markets. That's why he just went on camera to discuss it all...
In this special broadcast, Marc revealed a new strategy to help you understand how to position yourself to profit from this looming change.
And just for showing up, he gave out two free recommendations to help protect your portfolio against severe downturns. Catch up on the full details here...