Exactly How Bad This Bear Market Could Get
Editor's note: Don't let this painful market ruin your portfolio...
With sky-high inflation and rising geopolitical tensions weighing on several important asset classes, investors have been fleeing the markets in droves. But with inflation still nowhere near the Federal Reserve's 2% target rate, this downtrend could continue much longer...
That's why True Wealth senior analyst Brett Eversole believes investors must learn how previous historical downtrends have worked out in order to understand how to navigate today's market.
In today's Masters Series, originally from the October 2022 issue of True Wealth, Brett compares the chaos we're experiencing today with past bear markets... details how much worse this carnage can potentially become... and reveals how investors can position themselves to profit once the downtrend reverses...
Exactly How Bad This Bear Market Could Get
Anxiety is on the rise in America...
One study found that 5.1% of U.S. adults had anxiety in 2008. That figure grew to 6.7% by 2018. Then came the pandemic...
A recent study showed a fourfold increase in anxiety and depression one year after COVID-19 struck the U.S. compared with 2019.
There's no doubt that our lives have changed – not just since 2020, but over the past few decades as well. And those changes aren't all good for the human psyche.
Social media, for example, connects people and ideas that would have never previously crossed paths... But it also puts pressure on people to live unrealistic lives. It's "keeping up with the Joneses" on a new level.
Plus, true human interaction is less frequent for a lot of folks. Instead, we get tech interactions that are less fulfilling. No one notices it on Day 1. But on Day 100, life's suddenly less interesting – and less fun.
Of course, no single thing is purely responsible for the shift. But put it all together, and the result is an anxiety epidemic. It affects our lives, our relationships, our health... and our finances.
At its core, anxiety is a fear of the unknown. It's playing the "what if" game with no control over when to stop.
What if something happens? What if something goes wrong?
Everyone does it to a certain extent. And it's especially hard to ignore in difficult times, when you're given a reason to question things you'd normally be certain about.
You've probably asked yourself plenty of "what ifs" as an investor over the past few years. The voice likely got louder and louder as times got tougher and tougher...
What if interest rates go higher? What if stocks go lower? What if the economy gets worse?
Markets like these have a way of freezing you in your tracks. But they also offer up the solution to that paralysis...
If you want to get out of the "what if" game, the answer is to do your homework. Because while today might seem unique, it's not. The same problems have come and gone before.
A simple study of history can give you a road map of what's to come. That road map might not be perfect, but it'll help lower your anxiety about the markets. Most of all, it'll help you make the right decisions in a difficult time.
One of the biggest "what ifs" today is about this bear market...
Stocks across various important sectors have been plummeting since last year. And while this bear market is nothing new, this ongoing downtrend probably has you wondering how bad things could get from here.
And today, I'll answer that question. Stocks can still fall further from here. And the tough economic times are far from over. But the good news is, this rampant turmoil is setting up a historic opportunity to buy.
Let's look at what's happening the markets to see what I mean...
Now, to be clear, we're living through a painful bear market today. The fact is, though, bear markets aren't that rare...
We've had 19 bear markets since the S&P 500 Index began in 1928. That's one every five years. And the best way to know how bad they can get is to know what's going on in the economy.
Simply put, bear markets look a lot different when the economy is in recession.
To see this, let's first look at bear markets that have happened without a recession. Those have only happened six times in the history of the index. Take a look...
You might not expect that we could get a major drop in stocks without an economic downturn. But history shows it's completely possible.
Heck, even Black Monday – where stocks dropped 20% in a day – happened without a recession. And as we know from last year, any 20%-plus stock market decline is tough to swallow.
Still, bear markets tend to be longer and more painful when the economy is in the dumps. Take a look...
The first thing you'll notice is that twice as many of these declines happen with a recession than without one. They're also nearly 60% longer, on average. And the overall decline is nearly 11 percentage points worse.
This relationship makes sense. The stock market isn't the economy... But there's a clear link between the two. So the point is, it's hard for stocks to do well when the economy struggles.
More important, we can use the data above to learn what to expect from today's bear market.
As of today, the economy isn't in a recession. No one knows for sure if one will come or not. But even if it does, we're more than one year into this bust. And we've seen stocks drop as much as 25% – which is well over halfway to the average decline of 40.9%.
None of this means the bottom is in. But it does mean that the worst of this bear market is already behind us.
While that may be cold comfort, it should clear up a lot of the "what ifs" from investing today. And there's even better news...
The carnage we've seen so far is setting up an incredible move for stocks.
Good investing,
Brett Eversole
Editor's note: If you're like a lot of folks, you're probably feeling unsure about exactly what to do with your money. That's why investing legend Dr. Steve Sjuggerud is coming forward to discuss a historic shift that he believes is about to hit the market... one that could help you collect multiple 1,000%-plus winners.
This information could make or break your wealth for decades to come. Make sure to watch his presentation on January 31 at 8 p.m. Eastern time. Learn more here...