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If a Stock Market Crash Is Coming, History Says This Is the Best Move Investors Can Make
Major market indexes have been soaring lately, with the S&P 500 (SNPINDEX: ^GSPC), Nasdaq Composite (NASDAQINDEX: ^IXIC), and Dow Jones Industrial Average (DJINDICES: ^DJI) up by 6%, 9%, and 4%, respectively, since late July alone.
However, no bull market can last forever, and multiple indicators are sounding the alarm over a potential stock market downturn: The S&P 500 Shiller CAPE ratio and the Buffett indicator are both showing patterns last seen during the dot-com bubble.
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A Stock Market Crash Is Coming Sooner or Later. History Says Investors Who Do This One Thing Will Profit.
Year to date, the broad-based S&P 500 (^GSPC +0.21%) has advanced 13%, while the growth-focused Nasdaq Composite (^IXIC +0.16%) has added 15%. The driving force behind those double-digit gains has been strong corporate earnings results.
However, stock market corrections (and even crashes) are inevitable. Near term, the market faces headwinds related to elevated energy prices and potential interest rate increases. And long term, the S&P 500 and Nasdaq Composite could decline for any number of reasons.
Fortunately, history provides a clear blueprint regarding how investors should navigate the next stock market correction. Here are the important details.
The S&P 500 is widely regarded as the best benchmark for the overall U.S. stock market because it includes about 80% of domestic equities by market value. Since 2010, the index has suffered 10 market corrections, two of which eventually became bear markets.
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The Next Market Crash Is Coming — Here’s How to Prepare Your Business
There is going to be another significant stock market contraction. History guarantees that much. What history doesn’t tell us is when.
As I write this, both the S&P 500 and the Dow Jones Industrial Average are up over 12% since the beginning of the year and more than 20% over the past 12 months. It’s boom times in the markets. But make no mistake: sooner or later, there is going to be another significant stock market contraction. History guarantees that much. What history doesn’t tell us is when.
Over the past 50 years, the S&P 500 has fallen more than 10% on 25 separate occasions and more than 20% six times. People overbuy, overvalue and overextend themselves. It’s just human nature. This time will be no different. Back in the day, there were banking, internet, real estate, junk bonds, recession, inflation, energy and war crisis which caused stock market contractions. Today, there are many of the same factors, with the addition of crypto, terror attacks, AI and data center over-investment. All, most or any of these factors will contribute to the next contraction.
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