Recessions, Bubbles & Crashes: What you need to know

The question on everyone’s mind: are we in a bubble?

Ever since the S&P 500 fell from its all-time high (around 2,100) investors have been getting super antsy about where the market is headed. Are we in a bubble? Will the market crash? If so, will we once again see a recession like the infamous one in 2008?

Uhh. Can we get some perspective, here?

Bull Markets

As of this writing, the current bull market (a market in which prices are rising) is around 6.5 years old. Almost 3 years older than the average bull market, if you consider every single one since 1932.

What if we go back even further?

If you look at every bull market since 1871, (yep, there are records from back then) the median bull market has lasted 50 months (just over 4 years). This one is in its 79th month (measured from March 2009). This means it’s more than 50% longer than the median bull market. In case you didn’t get that: this current stock market run-up is 50% longer than half of all the bull markets in the last 144 years.

The median bull market has also delivered 124% in stock market gains in that time. In comparison, the last 6 and a half years has seen the market gain nearly 200%. It’s easy to see that the market is pretty ripe…but while it may be pretty long in the tooth, bull markets don’t die of old age alone.

bubble

When you compare this “bubble” to other long-lived bulls, however, you’ll see that it could actually have much further to run. While currently sitting pretty in 5th place, the next longest bull market ended in 1929 (ominous…) – lasting 98 months – so this one would have to continue climbing up for another 20 months to usurp it.

Bull markets tend to come crashing down for a reason. In 2008, there was the sub-prime lending crisis. In 2001, there was the dot-com bubble burst – sending many newly minted internet companies to an early grave. Sites like pets.com completely folded while better known names like Amazon saw their share prices collapse.

So, what can an investor expect from a bubble bursting? What does the typical bear market (a market where prices are falling) look like? Is it just complete mayhem, with stocks dropping to zero and people flinging themselves out of high-rise buildings?

*If we’ve already lost you, we’d highly recommend checking out this in-depth course on recessions, bubbles and crashes.

Bear Markets

Well, of all the bear markets since 1871, the median bear market lasted about 24 months (a full 2 years) and took about 38% of the stock market’s previous gains. Note that a bear market, on average, is shorter than a bull. What makes that number scarier is that, because of the way compounding works, a 100% gain is entirely wiped out by a 50% loss and a 50% loss needs a 100% gain to get you back level.

Just like with bull markets, there are many different types of bear markets. They can be short and intense, like the one in 1962 that lasted just 7 months and wiped out nearly a quarter of the previous market’s gains or long and slow – like the one which ran from 1910 to 1921.

bubble

So…if you put it all together, you end up with a market that is currently quite mature. We know that a bear market could undermine all the good work that’s been done in the last 79 months, and it could do so very quickly.

The market is very delicately balanced.

You have to ask yourself: can you see this market growing for another two years and beating the record set by the 1929 bull?

On balance, we’d have to say…no. There’s just so much working against it.

Oil prices are a huge drag on the energy sector right now, a sector which is nearly 20% of the overall U.S. market.

China, one of America’s key trade partners, is experiencing difficulty – which makes it harder to argue for strong, continued growth. If China imports 10% of all U.S. exports…what does that mean for U.S. companies when China starts to say “no thx”?

bubble

Add in the troubles in Europe and Japan, and the global economic outlook seems very dismal indeed.

The question then becomes: where will the growth come from?

If there’s any to be found, it’ll probably come from where it’s been coming from since 2009: the Federal Reserve.

The FED has been backing the stock market for a while now, by leaving interest rates near zero, essentially making bonds less attractive to investors and pushing the marginal investor into stocks instead. That causes the stock to artificially rise.

The FED is sitting on the sidelines watching all this, but have so far been reluctant to raise interest rates, because they’re super scared of what might happen to the stock market.

The one reason, in our humble opinion, that we may not end up seeing this bull market end in a catastrophic crash is that people seem to be cautious. The events over the last year seem to reflect that. Year-to-date, the stock market has been flat. People are just content to see what happens. There’s a famous quote that states, “bull markets mature amid optimism and die in euphoria”, and so far there’s a little optimism but not much euphoria.

Really, the most hubris is coming from the tech world, where valuations of startups like Uber and AirBnB are reaching crazy proportions. But considering that these are all private companies, their fortunes don’t have too much bearing on the stock market.

The most prudent thing to do is to prepare for the worst. At a point where it just doesn`t seem like things are going to look up, one should take precautions to protect their principal/initial investment.

Good luck!

bubble

January 2, 2021 Update: We have just announced our BEST STOCK NEWSLETTER of 2020 AWARD!

CLICK HERE to find out which stock newsletter was up 78% in 2020 (and whose 2019 picks are now up 113%).

*** Our Award for BEST STOCK NEWSLETTER of 2020 ALERT ***

Updated January 2, 2021

At WallStreetSurvivor, we subscribe to dozens stock recommendation and advisory newsletters. There is ONE newsletter that is constantly outperforming all of the others--The Motley Fool Stock Advisor.

Five of their 2020 stock picks have doubled and the average return of all 24 of their stock picks for 2020 is up 78%!

We have been tracking ALL of the Motley Fool stock picks since January 2016. That's 5 years and 120 stock picks. As of Friday, January 1, 2021 the Motley Fool's January stock pick (TSLA) is up 720%, their March pick (ZM) is up 172%, their April pick of SHOP is up 226% and their June pick CRWD is up 120%; and another two have more than doubled. In addition, 10 of their 2019, 12 of their 2018, 11 of their 2017, 15 of their 2016. Most impressively, over the last 5 years that we have been tracking every recommendation, their average stock pick is up 209%--tht means over the last 5 years their stock picks, on average, have TRIPLED!

Now no one can guarantee that their next picks will be as strong, but our 5 years of experience has been super-profitable. The important thing about the Fool stock picks is you have to buy them the day they are recommended because they usually pop 5-10% in the first 72 hours after the release their recommendation. You sure don’t want to risk missing out on their next pick.

Normally the Fool service is priced at $199 per year but they are currently offering a NEW SUBSCRIBER DISCOUNT that allows you to get theiir next 24 stock picks for just $99/year. HERE is the LINK to visit their New Subscriber Discount page.

CLICK HERE to get access to all The Motley Fool’s Stock Picks and their next 12 months of picks for just $99 per Year! 



GET UP TO $1,000 IN FREE STOCK

WHEN YOU OPEN A ROBINHOOD BROKERAGE ACCOUNT

Robinhood was the first brokerage site to NOT charge commissions when they opened in 2013. They just past 10,000,000 accounts and to celebrate they are offering up to $1,000 in free stock when you open a new account.

Here’s the details: You must click on a special promo link to open your new Robinhood account. Then when you fund your account with at least $10, you will receive one stock valued between $5 and $500. Then, you will get a link to share with your friends. Every time one of your friends opens an account, you will receive another free stock valued between $5 and $500. Click here to learn more about this Special Robinhood offer.

Claim your free stock NOW (before it’s too late)



One response to “Recessions, Bubbles & Crashes: What you need to know”

  1. […] Bubbles & Crashes: What you need to know blog.wallstreetsurvivor.com/2015/10/13/rec… via […]