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When Will the Market Plummet?

SaleWe know department stores will have huge sales the day after Thanksgiving, but no one tells us when stock or bond prices are going on sale. Analysts are paid big money to try and predict investment (Stock & Bond) prices, but they are often wrong and much better at hindsight than forecasting.

What we know…

Bonds:

  • Unlike stocks, bond prices have a ceiling as bond prices move inversely with interest rates.
  • The 30-year bull market in U.S. bond prices (is over) has very little room to continue as interest rates have generally been coming down for 30 years.
  • At some point, interest rates will rise and bond prices will fall.
  • Bonds will continue to trade in a range forever.
  • Future returns from bonds will be much lower due to low interest rates.

Stocks:

  • Stocks have been climbing out of the gigantic sale from 2008-9 sale for the past 5+ years and prices for the S&P 500 have recently reached all-time highs.
  • The stock market is overdue for a sale/correction. History suggests that the frequency of corrections increases as the bull market ages (especially after about 4.5 years).
  • Unlike bonds, stock prices do not have a ceiling.
  • Prices of company stocks are ultimately driven by earnings. Companies with high rising prices are generally rising because future earnings are expected to grow substantially.  There is plenty of reason for long-term optimism as consumerism and new innovation will continue to drive up earnings for many companies.

When will the next stock and bond sale happen?
I don’t know the answer. My hunch is that the sale will not be during this administration as I look at the money the Federal Reserve is pumping into the economy to keep interest rates low (supposedly to spur economic growth) and the stock market up.

We are long overdue for a SALE/CORRECTION in the overall stock market, but keep in mind that being a buyer when this happens generally pays off quite well (buying low). Investors call this “buying the dip”, and the success rate goes up when your holding period gets longer as opposed to speculating the market will spring right back up.

“Timing the market” is speculation rather than investing. “Investing” is about “time in the market”. While prices are high relative to where they were in the past, the same will probably be true ten years from now.
Make sure you have an investment plan that aligns with your financial or retirement plan.

 

chart-of-the-day-heres-one-chart-every-stock-market-investor-should-pin-to-the-wall

Despite mid-year sales (% in pink) the stock market has finished up 25 of past 33 years.

 

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2 thoughts on “When Will the Market Plummet?”

  1. susan peterson says:

    Hi Brad—-just looked at that article. Question—-just curious, what did the graph look like in the 70s? No pressure—when you have time.

    1. Brad Rosley says:

      I don’t have that, but I would guess there were similar inter year losses. From the mid 1960’s through the very early 1980’s the stock market traded during a range the entire period.

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