No, A Stock Market Crash Isn’t “Overdue”

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I recently penned a column about 10 reason the bears may be right, and why a correction in the stock market may happen this spring or summer.

You can get full details by clicking through, but a short list of challenges facing the S&P 500 (INDEXSP:.INX) right now includes:

  • Rising gasoline prices that could eat into consumers’ wallets
  • A slowdown in oil production weighing on U.S. hiring and business spending
  • Housing pressures hurting confidence
  • Weakening retail sales
  • Broad earnings pressure and revenue challenges
  • Stretched stock market valuations

Some folks have been messaging me as a result, asking if I’ve changed my normally bullish tune. So I’ll clear things up by stating that, for the record, I am still a long-term bull and I don’t anticipate a correction being anything more than a short-lived event.

How can I say this?

Because history tells me so — and because a stock market crash is a rare occurrence, even if regular pullbacks are common.

Stock Market Crash vs. Correction

stock market crash returns
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Take a look at this chart from JPMorgan, which shows the overall yearly return of stocks but also the worst intrayear correction.

You’ll see that in every case, the market finished the year much better off than it looked during its worst short-term run — and in the vast majority of cases, the market managed to finish up on the year even if it experienced a sizable drop (up to 34%!) during the course of the calendar year.

The textbook definition of a correction is a 10% — and by that measure, we are at roughly 1,300 days since the last correction in the market. That’s quite a run … but if you look at the history of the market in this JPMorgan chart, it’s not uncommon to see long periods of relative stability — including a multiyear run across the 1990s that saw few big declines and significant upward movement for the market.

So make no mistake — while I think there are reasons to be cautious or even bearish in the short term, a stock market crash is not likely and certainly not “overdue.”

I do think that the market moves in cycles and that it’s natural to see pauses and periods of consolidation. Now seems a very good time for such an event.

But a stock market crash? That’s not happening.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.


Article printed from InvestorPlace Media, https://investorplace.com/2015/04/stock-market-crash/.

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