crashes

 Originally Answered: Is the US stock market headed for a crash?

Yes it is absolutely headed for a crash, but first we have to define what a crash IS.

There are generally 3 types of “crashes”

1. Correction <15% downward movement in a major indicy
2. Bear Market <20% downward movement in a major indicy
3. Black Swan event, something very unexpected that tanks the market, think 1987, 1929, challenger disaster, 911 and so on.

The fourth type is the 1919, 1929, 1999 and 2008 scenario that people generally refer to as a “crash”

The move in 1999 and 2008 are actually extremely rare in the markets, there have only been a few times in the history of the stock market when the price has declined as much as it did during those times. Those were called “prolonged Bear markets”, not crashes that term is not accurate and used for hype purposes, it took a year for them to “crash”. So it is like having your car slowly crushed over the course of a full day and you saying “whats happening!” then dying in the accident 12 hours after the “accident” started.

So all that being said, Yes we are due a crash. However, no one knows when it will come, it could come 10,000 Dow points higher than we are today. It could come next week, but no one knows for sure.

The market has had prolonged bull markets for decades in the past, many lasted many many years. As you can see in the chart below we had one from 1924 to 1930, from 1950 to 1966 and from 1984 to 1999 and now from 2013 until 2018 and still going and we have some ways to go in my opinion.

Markets “crash” for a few reasons:

• In 1929 we crashed due to too much margin in the market and everyone was on one side of a very bull market. Also the market was immature and had inadequate stop measures in place.
• 1971 War with Vietnam, ending with high taxes and the oil embargo caused the 1970’s to suck.
• 1999 Stocks were way too overheated, internet bubble. We all know that story
• 2008 The big housing financial crisis

In 2018 we have no big macro (big picture) events on the horizon, we have a steady housing market, no major debt crisis or high leverage institutions, oil just came off of lows, mature markets, no wars on the horizon, not real bubble to speak of and the banks are in great financial condition. Unemployment is very low, interest rates are still low, the US is growing at a pace that is very sustainable and while it may feel overheated because people think it can’t go on forever, people’s “feelings” in markets are more often wrong than right.

Markets tend to be topping when everyone thinks they will be millionaires trading stocks, not when a lot of people think were going lower, that is when stock go higher! Counter-intuitive, but true.

We are going to have some corrections and even a bear market or 2 before we have another larger “crash” but as you can see real crashes only happen a few times. This is a fantastic time to be investing.

So are we due a crash, Yes, when….not soon