Stock Market Crash: This One Factor Could Cause Misery for Stock Owners

Stock Market CrashStock Market Crash in 2016?

If you are not paying attention to fundamentals, you could be making a big mistake. They are screaming that the stock market crash in 2016 could be very possible.

It can’t be stressed enough, and sadly, it continues to get ignored. Earnings matter—they are one of the biggest factors in deciding where key stock indices go next.

As it stands, earnings are collapsing. To us, it’s a big red sign that suggests the stock market crash could be ahead.

Before going into details, look at the chart below and pay attention to the trend line. It shows the earnings of S&P 500 companies from 2011 to today.

SPX Earnings INDX

Chart courtesy of

Corporate earnings among the S&P 500 companies have been declining since the second quarter of 2015. The first quarter of 2016 marked the fourth consecutive quarter of declines—the steepest decline since the financial crisis of 2008 and 2009.

The worst part is that earnings are expected to continue to fall going forward as well. In the second quarter of 2016, the S&P 500 companies are expected to report a decline of close to five percent in earnings. (Source: “Earnings Insight,” FactSet, May 27, 2016.) Apparently, they are expected to grow by 1.4% in the third quarter, but time will tell. We usually see these earnings estimates plunge lower as time passes.

Looking at all this, one could assume that the stock market crash is in play already—wrong.

Across the board, we see optimism. No one wants to even acknowledge that earnings are collapsing and it’s one of the warnings of a stock market crash. Just recently I read an article stating that the stocks are going to see an “explosion” to the upside. An analyst from a well-known Wall Street firm was saying this.

If this isn’t irrationality, I don’t know what is.

Protect Your Portfolio from a Stock Market Crash?

Let me digress a little…

I remember 2007 very clearly. In either June or July of that year, I remember watching a one-on-one interview on a well-known financial news channel.

The hosts of the show asked something along the lines of “how can you be so pessimistic when the stock market is at its all-time high?”

The guest responded, “You just don’t buy when everyone is buying.” He added, “When markets are at their all-time high, you should pause and reflect on what just happened. In 2000, when the NASDAQ was at 5,000, no one questioned if it made sense for index to be that high. It didn’t.”

Dear reader, if you listen to the mainstream opinion, you will find a lot of reasons to be bullish on the stock market. Before you listen to an outspoken stock advisor, you should pay close attention to the data. It suggests that a stock market crash could happen in 2016 and it’s not good to say the least.

Now the big question is this: how do you protect your portfolio from the stock market crash?

There are three things you have to remember:

  1. Diversification: It helps reduce the downside.
  2. Trade Management: It’s easy to say, but very hard to do. The concept of trade management is simple: you reduce your losses by cutting them and taking profits off the table.
  3. Seek Safety: Have exposure to assets that are not correlated to stocks. So, owning gold and silver could make sense.