It can arguably be said that the current bull market for stocks dates back to the worst part of the 2008 financial crisis, when stock markets bottomed out in 2009. While markets didn’t really mount serious growth until 2016, their growth since then has been pretty strong. And this year especially, stock markets have seen significant gains. But could this all be coming to an end?
The current bull market hasn’t been without its ups and downs, with some significant corrections and even the minor forced recession last year that saw markets lose about 35% of their value. But with markets nearly doubling since that time, many investors think the worst is behind us. Many retail investors are chomping at the bit, impatient for future gains and thinking that stocks can’t possibly go down.
But this week saw some extreme jitters in stock markets, with the Dow Jones and the S&P 500 seeing major losses. Like last year’s COVID-related losses, a lot of this revolved around events in China. The next financial crisis could very well be instigated by events in China and the corresponding contagion that that could engender. Many have speculated that China is long overdue for a significant recession, and with the evidence of widespread financial malfeasance among Chinese corporations, there’s a very good chance that this week’s events could be the first inkling of major unraveling.
If you’ve been watching markets nervously this week, what have you done to prepare yourself and protect your portfolio? Could you sustain another 55% loss like the 2008 crisis? If not, have you looked into protective measures such as precious metals to safeguard your savings?
Factors Contributing to a Stock Market Crash
One of the major drivers behind the current bull market has been extraordinarily accommodative monetary policy for over a decade. The response to the 2008 crisis was for the Federal Reserve to purchase trillions of dollars’ worth of financial assets with money it created out of thin air. Eventually as that newly created money circulated through the financial system it led to a rise in prices throughout the economy.
That effect has accelerated since last year, as the Fed created another $4 trillion out of thin air to pad its already bloated balance sheet. From houses to cars to meat at grocery stores, we’re now seeing the effects of that money creation in the form of drastically higher prices.
That money creation has also fueled the recent stock market bubble, with markets hitting numerous all-time highs this year. But with the Fed signaling that it may begin tapering its asset purchases, we may be seeing the beginning of the end of the bull market.
Fed Signals Tapering and Rate Hikes
While the Fed didn’t officially announce that it would begin its tapering after its most recent Federal Open Market Committee (FOMC) meeting, Fed Chairman Jay Powell has previously stated that mid-2022 would be a good time to consider ending the Fed’s tapering.
Markets had expected a tapering announcement this week, with tapering to commence in November. With no announcement this week, we likely won’t see an announcement of tapering until November’s FOMC meeting, with tapering likely to start in December. That pushes up the schedule of tapering, requiring a slightly accelerated timeline in order to finish tapering by mid-2022.
As Chairman Powell has stated before, tapering is not tightening. That is to say, tapering is just reducing the pace at which the Fed expands its balance sheet, it isn’t actually reducing the size of its balance sheet. But with the latest Fed dot plot projections indicating a potential rate hike in 2022, or possibly even two, markets still think the Fed’s latest stance is hawkish and that monetary policy will tighten next year.
Thus, we have two major issues weighing on stock markets for the rest of the year: ongoing economic uncertainty in China, and potential monetary tightening. Neither of those signals’ further bullishness for markets.
Where Will Stocks Move?
We’re coming up on a time of year in which stock markets have traditionally seen significant corrections. Black Tuesday in 1929 took place near the end of October. Black Monday in 1987 was also in October. And the most fearful period of the 2008 crisis took place in late September and early October, culminating in the $700 billion TARP bailout. In other words, if there’s going to be a major correction, a crash, or even just the first inkling of a crash, this could be the time of year that you’re most likely to see it.
Don’t be surprised to see stock markets give up gains over the rest of the year. Unless the Fed makes an abrupt about-face and decides to make massive increases in its asset purchases, the monetary support for further stock market gains just won’t be there. And while the worst of the declines could likely come after tapering concludes, you can’t rule out significant declines before then as investors panic and try to cash out before what they see as an inevitable correction.
Don’t forget that while economic fundamentals ultimately underlie the performance of markets over the long term, psychological factors can influence things in the short term. And when people start to panic and think that their wealth is at risk, they begin making major financial decisions that can start to roil markets.
Protecting Your Wealth with Gold
The key to success in markets is anticipating what is going to happen and reacting to it before it happens. Obviously, no one is going to get that right 100% of the time. But even being a little ahead of the curve is better than being late. As one famous investor once said, you want everyone else to agree with you… after you’ve already made your move.
In other words, the smart money anticipates what’s going to happen, takes steps to protect itself, and then watches as everyone else imitates it. And right now, a lot of that smart money is moving into precious metals like gold and silver.
Gold and silver have a track record of performing well when stock markets don’t, such as during the 1970s, when stagflation kept stock markets floundering. Gold and silver, by contrast, made annualized gains of over 30% during that decade. In the aftermath of the 2008 crisis, when stock markets were trying to regain their footing, gold and silver also made great gains, with gold nearly tripling and silver more than quintupling.
If you’re starting to worry that your stock investments have maxed out, and you’re looking to protect and preserve your wealth, maybe it’s time to start thinking about gold and silver. There are numerous options available to you to buy gold and silver coins or bars, from a precious metals IRA to direct purchases of precious metals coins.
With over a decade of experience helping thousands of customers buy gold and silver, Goldco’s precious metals experts can help you with the precious metals purchase process so that your assets remain well protected. Don’t let your hard-earned retirement savings fall victim to a stock market crash. Call Goldco today to start safeguarding your savings with gold and silver.
is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.
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