Dan Dobry
Dan Dobry

Is The Inevitable Crash on its Way?

Is a market crash coming? 

In this case, we could be on one of two sides: the winners or the losers.

The latter could lose their shirts and forfeit their dreams of retirement; the former will preserve and even grow their wealth.

Here’s the situation…

Stocks have been in a bull market for eight years. That’s 96 months of stocks going without a drop of 20% or more.

It’s uncanny.

Just for perspective, the average life span of a bull market is 57 months.

We’ve blown way past that. Now, we’re closing in on the record — 113 months, from October 1990 to March 2000.

It’s been a fun ride, no doubt. But unfortunately, these things don’t last forever.

The market will crash.

It won’t just ease down or “retrench.” It will crash. It could shed anywhere from 50% to 80% of its current value.

This is just how it works.

Big bull markets like this usually end with a bang, not a whimper.

For instance, the longest bull market in U.S. history (which began in 1990) ended with the tech bubble bursting in 2000.

When this happened, the Nasdaq Composite lost 78% of its value, tumbling from 5,046.86 to 1,114.11.

The current bull market may be poised to meet a similar fate. They all do.

Stock market crashes are not new to individuals who have recently started investing. Pretty recently, there was a market crash triggered by the Covid-19 pandemic. Between 12 February and 23 March 2020, the Dow Jones lost about 37% of its value as economies went into lockdown. The Dow lost nearly 3,000 points or 12.9% of its price on 16 March alone. 

The stock market, like many other things in life, has its ups and downs. There are bubbles, bull markets, bear markets, retracements, and sometimes, although less often, a crash. Typically, prices usually recover within 18 months, which creates plenty of buying opportunities for my portfolio. So, is there another market crash on the horizon? Let’s look at the most likely triggers.

Possible hike in interest rate

Interest rates were cut to their lowest point at the start of the pandemic. But due to the vast amount of stimulus being injected into economies worldwide, inflation is on the rise. Interest rates may have to climb to counter rising inflation.

That’s good news for bondholders. But for the stock market, it could cause a severe correction or even a market crash as businesses see their interest bills on loans jump. And for the companies with enormous piles of debt, it could even lead to bankruptcy.

Increase in retail investing

One of the sure signs that a crash is on its way is the exponential increase in retail investing. Just this year, a massive flock of young investors entered the stock market, the vast 

The height of this was seen in the meme stock movement that continues today, where a collection of mostly struggling businesses saw their share prices explode to unsustainable levels. This isn’t sustainable over the long term. And suppose shares being inflated in such a fashion fail to meet the extraordinarily high expectations from investors. In that case, these stocks could very quickly come crashing down, which, in turn, could trigger a stock market crash.

It’s exceptionally difficult to accurately predict when a stock market crash will occur. But a common trigger is prices being inflated to unsustainable levels. A prime example is the dotCom companies in the late 90s or absurdly high property prices in 2007.

Today it seems similar levels of price inflation are being triggered by several factors. But predicting when or even if this suspected bubble will burst is anyone’s best guess. Regardless, suppose a stock market crash does come. In that case, it’s worth it to prepare and check out alternative investment choices. 

About the Author
Dan Dobry was the founder of the Union of Financial Planners in Israel (UFPI), served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and from January 2019 is a member of the Committee for Standards and Qualifications for the European Union (SQC).
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