Is the Stock Market Crashing?

After watching markets fall farther and farther, suffering their worst weeks in decades and their worst days in years, it’s not surprising so many people are asking the question, “is the stock market crashing?” The Nasdaq index officially hit correction territory on Monday as it’s now fallen over 12% from its recent peak. The S&P 500 is right behind it, having suffered nearly an 8% drop. The Dow, with less exposure to Big Tech is only down around 6% from its peak. But it just suffered the worst single-day drop since the COVID crash in 2020. So, is the stock market crashing? Or are we just experiencing a typical correction?

Is the Stock Market Correcting?

There are arguments to be made in either direction when you pose the question, “is the stock market crashing or is it correcting.” You see, a correction in the stock market is defined as a drop of 10% or more from a recent peak. And a healthy stock market will see, on average, at least two 5% drops and one 10% correction every year. It’s just how the market works.

It’s like a pendulum swinging back and forth over a center point. It never settles in the middle, but always swings too far to the left and then too far back to the right. That’s what you see when there’s one of these 5% drops or 10% corrections. And that could be what you’re seeing now.

Stocks just got too far ahead of themselves. They were pricing in things that didn’t pan out the way they’d expected. People were betting that stocks would only go up. Valuations were getting stretched thin and the entire market was getting overbought. That’s prime time for a correction to reset the market back to its trendlines.

Or Is the Stock Market Crashing?

But, that all being said, there are reasons to worry that this is the first volley in an all out war on asset values. And the answer to the question, “is the stock market crashing,” could very well be a yes. Because, as I wrote a few weeks ago, leading indicators that have accurately predicted every bear market in recent memory are flashing a warning signal. Manufacturing is weak and that’s another leading indicator of a recession.

Plus, consumers are getting pressured more and more. Because even though inflation is slowing, prices are still rising. And pandemic-era savings are nearly gone. That’s forcing more people to put day-to-day expenses on credit cards and that’s leading to an uptick in credit card delinquencies. Small banks haven’t seen levels like this ever, and that includes back in 2008/2009 and during COVID:

It doesn’t paint a pretty picture of a strong consumer. Neither do auto loan delinquency rates. Nor do mortgage delinquency rates. Both of those ticked up higher in the second quarter of 2024. There’s no way around it. Americans are carrying more and more debt. And at a time when interest rates are higher than we’re used to, that debt is a lot harder to carry.

The U.S. national debt is getting unsustainable, too. This year, interest payments surpassed defense spending to become the largest line item on the federal budget. And at over 120% of GDP, it’s not something we can keep growing without consequences eventually catching up with us.

Tell Me What You Really Think

There’s good reason that this could be the beginning of the end of the good times. But there’s also plenty of evidence that this could be just a garden-variety correction. And when I ask myself, “is the stock market crashing,” I just can’t honestly say that I’m convinced it is.

This all seems like a correction to me. And it seems pretty easy to understand. There were a few crowded trades holding the whole market up. When those started to get too crowded and too highly valued, people started taking profits. When everyone is invested in just a few stocks… And those few stocks make up the majority of indexes like the Nasdaq and S&P 500… A drop in Big Tech means a drop for the markets, even if people are just rotating out of the Magnificent 7 and into the “Other 493.”

I don’t think we need to worry about a crash coming right now. But I always try to remind myself that the best stock picker in history, Peter Lynch, freely admitted that he couldn’t tell you where the next 1,000 points would take us. He just knew that the next 4,000 points were almost certain to take us up. And it’s in times like these that I’m reminded of something else that famous investor once said.

“Market fluctuations, while no means comfortable, are normal.”

The Bottom Line

So, there you have the reasons why this market may be crashing, but also my reasons for why this market isn’t crashing. And you’ve got my personal take on the situation, which is that we’re not in a crash, but even if we are, a decade from now, stock values will be up.

And the bottom line here is that, while I could be wrong about the crash, there’s a 95% chance I’m right about the next decade:

Hopefully you can take some comfort knowing that, on average, stocks usually go up. And the longer you hold them, the more certain those profits become. And maybe you can also take some solace knowing that Peter Lynch, that legendary stock picker who ran a market-beating fund for over 13 years, was fully invested at the start of every major drawdown during that period. Yet he still beat the markets for 13 years running, something Warren Buffett himself said was impossible.

So, whether the stock market is crashing or it’s just correcting before heading higher again, if you’re in it for the long-haul, you’re going to make a profit no matter what direction the next 1,000 points take us. Just make sure you keep coming back to Wealth Daily to stay on top of the investment trends that will last for the long run.

I and the rest of the team will be back soon with ways you can capitalize on this drop while also protecting yourself from a recession, should one actually come our way.

To your wealth,

Jason Williams

@TheReal_JayDubs

Angel Research on Youtube

After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter; the founder of Future Giants, a nano cap investing service; and authors The Wealth Advisory income stock newsletter. He is also the managing editor of Wealth Daily. To learn more about Jason, click here.

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