It’s nearly official…
In two days, the U.S. stock market will close its best year since 1997… up around 32%.
Stocks moved up like clockwork this year. At a max, the market fell 6% from late May through late June. And we haven’t seen a major “correction” in stocks since fall of 2011, when the market fell 19% in a few months.
[ad#Google Adsense 336×280-IA]This lack of volatility has a lot of folks scared.
And it’s easy to see why…
A shakeout in prices is healthy for any bull market.
And without a downturn, investors continue to pile into stocks.
Since it has been over two years since the last real correction, it’s easy to believe that we’re due for a price slump.
Personally, I expect to see HIGHER prices over the next two years.
And when the next correction does come, it won’t be a 2008-style crash.
Let me show you why…
As longtime DailyWealth readers know, I’m a bit of a number junkie. When you see folks in the mainstream media babbling on, they’re usually tugging on your emotions… “fear” and “greed” are the two emotions often hit when it comes to markets.
But if someone stopped to ask for the facts – if they asked what history actually says – these arguments often fall apart. The mainstream media often sells a good story, not the facts.
Well, with all the recent bubble talk about stocks, I set out to see what we should really expect out of the market over the next few years… based on history, of course.
I looked at 60 years of data with a simple goal… find out how often stock downturns really happen. And more importantly, find out what determines their severity. I promise the results will surprise you…
Since 1953, we’ve seen 16 “bear markets” in U.S. stocks. My definition of a “bear market” is simply a sustained period of flat or down stock prices. (Specifically, either a 15%-plus fall in prices… or at least six months of price declines.)
With 16 bear markets over a 60-year testing period, we’re “due” for a bear market every four years. And our last bear market occurred just two years ago, in late 2011.
Said another way, the idea that we’re “due” for a big downturn in stocks simply isn’t true. Based on history, we should expect another two years of gains before the next bear market.
But here’s what’s even more important…
When the next bear market begins, history says it won’t be a 2008-style bust in stocks. Here’s why…
My testing uncovered an interesting quirk in our 16 bear markets. It turns out that when stocks fall during a recession, the fall tends to be much more severe. The table below shows what I mean…
As you can see, bear markets last around twice as long during a recession. And they cause an average fall of 38% in recessions versus just 18% in non-recessions.
In short, when the U.S. economy stinks, bear markets in U.S. stocks are much worse. And that’s great news today.
You see, while the U.S. appears to be stuck with slow growth, there is no recession in sight. No major economists are signaling a recession today. And our favorite indicators say we’re in the clear as well.
For stock investors, that means when the next correction does arrive, it won’t be 2008-style. History shows it will be more like the 19% fall we saw in 2011.
And again, history is clear that we’re not “due” for that correction to happen today.
When will the next downward move in stocks arrive? That’s a question no one can answer for sure. But when it does, I urge you not to panic like the masses.
The next correction won’t be a crash. It’ll simply be a bump on the road to higher highs. And I’ll be happy to use it as an opportunity to buy.
Good investing,
Brett Eversole
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Source: DailyWealth