Crash Alert: The Market Set For A 51% Fall? (New Data)

This post Crash Alert: The Market Set For A 51% Fall? (New Data) appeared first on Daily Reckoning.

Today I’m going to flip the tables… Something I have not done in a while.

I’m going to spin the stock market around and take a look through the eyes of a bear.

Fact is, I check my email constantly (a little too much my family may say!) And through the stacks of reader mail, from loyal readers like you, one question continues to stand out:

“Zach! The market seems artificially high… it looks like it’s ready for a fall. What do you think?”

That question — and the answer — are VERY important for serious investors or anyone looking to retire “on time.”

To be honest, you might not like what you’re about to read.

But keep in mind, the research I’m about to share with you is based entirely on historical data. There is no opinion here — just the cold, hard facts…

An event is looming over the current bull market that isn’t getting any attention from the mainstream media. And worse, this event is almost guaranteed to happen.

My colleague Jody Chudley, an accountant who specializes in number-crunching (and staying one step ahead of the market), takes a deep look at an ominous cloud hanging over today’s bull market.

If you’re one of the many folks that thinks today’s bull market may be ready for a breather, you’re going to want to see what Jody has to say. Read below for more…

Is Your Financial House In Order?

Jody ChudleyWhen I tuck my two little girls into bed each night they always have one last request.

“Daddy, did you close my closet door?”

The kids are serious.

This request is a deal-breaker if not completed.  If that door isn’t closed, those kids are not going to bed.

Why?

Monsters of course!

Apparently both of my girls have something terrifying living in their closets that appears only after the lights go out.

Thank goodness those frightening beasts aren’t able to operate a closet door!  To date nothing has ever come out of either closet with the door closed.

The truth is of course that there are no monsters in either closet.  I’m certain of it.

Believe me, the kids have had me check.

My kids are safe from closet monsters.  You and I however do have something to be afraid of.

It is the monster that lies in wait of the end of the current bull market.

I’m afraid that is a beast that is going to be very, very real.

Here Are The Very Real And Very Frightening Historical Facts

I’m an accountant by training. Truly, I love numbers.

As such I’m much less inclined to take what I hear as gospel, and instead choose believe what the numbers (or verifiable facts) tell me.

People chronically exaggerate and often flat-out lie.  It is unfortunately part of our nature.
Numbers and facts on the other hand don’t (unless people have manipulated them for their benefit).

Today I’m going to show you some historical data.  There is no opinion here, no agenda on my part, these are just facts.

Then, after I show you the data, I’ll show you why I’m personally very concerned.

Let’s get to it.

As you may be aware the current bull market is a very long one.  It started ominously with a 666 low on March 6, 2009.  From there the S&P 500 has gone virtually straight up.

S&P 500 Level

If you had $100,000 invested in the S&P 500 as of March 6, 2009 you would now have $358,700 as of Monday May 1st, 2017.  That is an incredible return over an eight year period.

And not from one great stock mind you.  This is what the entire market of stocks has done.

Clearly that is an exceptional bull run. Generating these kinds of returns has rarely been this easy.

This bull market isn’t exceptional just for how much the market has increased.  It is also exceptional for the length of time that it has been increasing.

As of today we are in the second longest bull market in history.

What we are experiencing is not normal. This has only happened once before. We have been having an extraordinarily good time.

Where this gets frightening is with what happens when a really long bull market ends.
Remember, this is the second longest ever…

In the table below I’ve compiled the 7 longest bull markets in history. Our current bull market is shaded in gold and sits in second place.

The only longer bull market is the one that ended in the year 2000.

What I want you to focus in on is the subsequent crash column. This column tells us what happened when the other six really long bull markets ended.

I haven’t excluded any other similarly long bull markets.  These are all of them.  The data is complete.

The ending of the 7 longest bull markets in history

You can see that on average the end of the previous 6 other long bull market runs has seen a 51 percent stock market decline (crash would be more accurate).

Can you imagine…..a 51 percent crash is what we should expect from the end of the current bull-run if we follow the historical average!

Of course it might not be that bad.  The 1956 bull market only saw a 22 percent market correction.

In 1987 it was “only” 34 percent.

Worth considering about those two though is that both of those bull markets were shorter than this one by 38 months and the total market increase was much less (201% and 249%) vs 258%.

A person would expect those shorter and smaller bull markets to have a less dramatic ending.

The last bull market that endured a similar length of time as this one ended in 1929 and saw a subsequent 86 percent decline.  We are all familiar with that market crash since it was legendary for the pain it inflicted.

The only longer bull market ended in 2000 with the popping of the tech bubble and a 49 percent market decline.  Also not pleasant.

Not pleasant at all.

Do I Really Believe In Monsters?

The numbers I’ve presented for you are pretty eye-opening.

I certainly hope that they got your attention. There is no hype here, no spin, no drama being created by me.

This is what has historically happened in bull markets like what we have today.
These are the cold, hard facts.

When bull markets run for this long they have ended very, very badly — every, single, time.

My kids close their closet doors so that they don’t have to see what lurks in the dark.  That works for them because the monster that they are confronted with doesn’t exist.

They can just ignore the problem and it will go away.

For us as investors I’m not so sure we are going to be so lucky.  Closing our eyes and hoping for the best is not the appropriate strategy.

With history as our guide, a brutal crash is more likely than not.

Here’s to growing and protecting your wealth!

Jody Chudley

Jody Chudley
Credit Analyst, The Daily Edge
EdgeFeedback@AgoraFinancial.com

Zach’s Note: While we’ve still got the “buy” flag waving at Daily Edge headquarters, it’s important to keep an eye on the downside. After all, the first key to making money is not losing it! In the coming days and weeks we’ll continue to keep an eye on any cracks forming in the current bull market. If there’s a change in trend, you’ll be the first to know. That said, if you have any questions or concerns you’d like us to cover in upcoming Daily Edge articles, be sure to send any comments to EdgeFeedback@AgoraFinancial.com

The post Crash Alert: The Market Set For A 51% Fall? (New Data) appeared first on Daily Reckoning.

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