Earlier this year I told you to expect a lot of volatility in 2015. Since then, the market has bounced around with a poor start to the year, a substantial rally, and the first quarter ending with a fizzle.
Of course, the markets continue to press higher. But way too many investors — both professional and retail — are too optimistic about the future of stocks.
Liquidity is scarce. Capital to invest with has been drained. The IPO market is overheated. And the volume in the stock market is anemic.
All of these are headwinds to lower equity prices.
How low could the market go once these headwinds start to impact stock prices? Let’s consider the past few bear markets we’ve had in recent years…
The chart below shows the three bear markets we’ve had so far this century.
These are the ugly periods we’ve seen in the markets. During them we saw declines of 29.7%, 31.5%, and 53.8%.
The Dow has to fall 30% in 50 trading days or 13% over 145 trading days to be considered a bear market. By that measure… we have not had a bear market in over four years! The longer this bull market goes on, the more pain we will likely feel when the stock market rolls over.
And this is just the Dow, which, you know, only covers some of the greatest companies in the world. If they suffer a 40% decline… what do you think could happen to the average company that isn’t among the best and biggest in the world?
As for you, you’ve got to ask yourself: “Can I endure a 40% to 50% decline?”
If you’re a long-term investor, this will present a great opportunity to scoop up shares at lower prices — but only once the market has already tanked.
If you allocate capital right now, with all of these headwinds facing the market… you’re looking at low returnrn prospects.
Invest cautiously moving forward. Consider allocating capital to a system like Max Profit Alert, Adam’s newest advisory, which is designed to survive and thrive even in bear markets. Better opportunities will come for long-term investors, but not for awhile, which is why I recommend a strategic system like his.