Are We on the Verge of a Stock Market Crash In 2017?
If you have enjoyed the gains provided by the stock market over the past seven years, don’t become too complacent now. We could be on the verge of a stock market crash in 2017.
If you listen to the mainstream media, it will tell you nothing is wrong. It will convince you that the Dow Jones Industrial Average will reach the 20,000 level sooner rather than later, and that the S&P 500 will skyrocket from its current levels.
Dear reader, be very careful. Before you subscribe to the noise, know that the fundamentals suggest that a major stock market crash could be ahead in 2017.
Catalysts for Stock Market Crash In 2017
There are at least three things that investors should pay attention to going into 2017. First and foremost are corporate earnings. They are declining, and this fact should be taken very seriously. Understand that earnings and the direction of the stock market have a direct relationship. If earnings decline, a stock market crash follows. This has happened in all of the previous stock market crashes.
Second, understand that the U.S. economy is in trouble, and the global economy remains fragile. Growth is stalling. Not too long ago, the International Monetary Fund (IMF) issued dire projections for the global economy. It revised its previous estimates lower and it says there are several downward pressures on the global level.
As for the U.S. economy, it’s performing well below its long-term average growth rate. The worst part is that even the Federal Reserve isn’t so optimistic toward growth. It doesn’t outright say so, but its projections are very clear.
Lastly, when it comes to monetary policy, we see a huge disparity. Currently, the Federal Reserve is focused on increasing the interest rate, while the other major central banks are working to lower them. This disparity is dangerous. It could cause a substantial rise in the value of the U.S. dollar, which would negatively affect U.S. exports, and thus hurt the earnings of companies that have a global presence. This factor alone could lead to a severe stock market crash in 2017.
Welcome to a Bear Market
With all this happening, one could ask; when will the stock market crash happen in 2017? Truth be told, I don’t have a crystal ball, nor can I predict a top. However, from experience, I know that things could get ugly and the losses could run deep.
But know that in the times of greatest uncertainty, you can find the best opportunities. The stock market crash in 2017 may turn out to be a great investment opportunity. My experience in bear markets is to take a deep breath and slowly look for opportunities in the selling chaos after a stock market crash.
After seven-plus years of a Federal Reserve-induced bull market that was fueled by easy money, we are now seeing what happens when things begin to unwind and the stock market is required to fend for itself without easy money from the Fed.
An Easy Way to Protect Yourself
At this point, I’m going to emphasize again the need for insurance against potentially huge downside moves.
You should consider having some put options in place to help minimize the downside moves. The value amount of puts should roughly equate to the value of your portfolio, meaning a $100,000 portfolio should have $100,000 in protection.
It is not cheap, but this strategy will pay off if the stock market crash worsens. If stocks hold and rally, you lose the premium, but so what? Think of puts on stocks as akin to insurance on your house, car, or other valuable assets. You would have insurance in place for these assets no matter what, so why not for your investment portfolio? It’s the best way to survive the coming stock market crash.