I Believe Stocks Still Have Plenty Of Upside Ahead

“U.S. Stocks Head to Eight-Month Low.”

That was in the lead headline from Bloomberg on Monday. The market has had a weeklong rout, falling every trading day since December 3.

The recent slide has investors asking the same questions once again. They’re desperate to know: “Is this the end?”

Of course, all this is nothing new. Folks have been fearful of the “Melt Down” for years. They’ve used every fall in stocks to push the idea that the next “big one” was here.

It’s no different this time around. And you shouldn’t buy into the fear.

I believe stocks still have plenty of upside ahead. We’re not at the start of the Melt Down. And I’ll share the simple reason why in today’s essay.

Let me explain…

Here in DailyWealth, you all know my “Melt Up” thesis. At the end of a historic bull market, we tend to see a last, volatile push higher in stocks. And we want to be invested right now… while we can still capture this huge upside potential.

You might wonder why I’m so confident in such a tough environment. The reason is that I can tell you when the Melt Up will end… and when the Melt Down will arrive.

No, I can’t tell you the exact day. But I can tell you the circumstances we’ll see. Namely, one major event always happens alongside major market falls.

Major stock market crashes always occur during recessions.

If you want to know when stocks will crash, look at the economy. Stocks have a hard time rising when true economic turmoil strikes.

Because of that, it makes sense that the absolute worst economic times have led to the absolute worst stock market crashes – specifically, the Great Depression and the Great Recession.

But even looking outside of these instances, every major market fall has happened when the economy was in terrible shape. In total, we’ve seen seven stock market crashes of 40%-plus…

  • Stocks fell 86% from the peak in 1929 to the bottom in 1932.
  • We saw another 55% bust from 1937 to 1938.
  • The Great Depression included two more major falls of 45% and 41%.
  • Stocks fell 48% during the 1970s as inflation battered the U.S. economy.
  • Stocks fell 49% from 2000-2002 following the tech bubble.
  • And of course, the market crashed 57% during the Great Recession.
  • All of these 40%-plus declines had a common theme… They happened when the U.S. economy was in a recession.

This tells me we’re safe to stay long until a recession is looming. That’s the warning sign that the Melt Up is over… and the Melt Down is on the way.

This is also why I’m not worried about the most recent fall in stocks.

According to my research, we shouldn’t expect a recession anytime soon. I’ll share two reasons why in tomorrow’s DailyWealth essay.

We’ll check in on how the economy is doing right now…and the two key measures you should be looking at to gauge the health of the stock market.

Until then, know that no recession means no Melt Down. And that means we don’t need to stress out about the recent decline in stocks.

Good investing,

Steve

Source: Daily Wealth