There are LOTs of people fearful of a BIG stock market correction. They’re paranoid for several reasons, one of which is that the Market has run up so much lately.
I can’t predict the future, but experience (over 35 years of investing) tells me that given current market conditions, a correction would be a buying opportunity, not a reason for panic.
Why? Because this Market is being driven by Federal Reserve (FED) monetary stimulus and Congressional fiscal stimulus. Does that cause inflation? Yes. Does that cause “asset bubbles”? Yes.
Both of those “negatives” are short term “positives” for the stock market and will cause prices to move higher.
But isn’t that a problem long term? Especially when the asset bubbles pop? Sure…but the game is played by trying to get out before the music stops.
When does that happen? Usually when the stimulus stops or when consumers stop spending. (SIDEBAR- can’t cover it in this article, but consumers will continue to spend until their credit is cut off.)
So why am I fairly confident that this bubble will keep inflating and the stock market will go higher? Because the stimulus hasn’t stopped and credit hasn’t dried up.
See the below chart. It illustrates the S&P 500 recovering after major crisis bottoms- September 11, 2001 Terrorist Attacks; 2008 Financial Crisis; and COVID19. Note how our current crisis is tracking so well with the 2008 Financial Crisis.
Will there be switchbacks and corrections ahead? Very likely. But that’s random noise that’s very difficult to accurately pinpoint. Given the current circumstances, I think we’re still in the early innings of this recovery. From a probability perspective, I think it’s much better to just “ride the wave”, as asset prices continue to rise…into the next big crisis. That’s a problem for another day.
Long term wealth is built by identifying patterns and reacting according. Speaking of long term wealth building…please check out my recent video: Invest like an Iceman
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