Market decline

This stock market drop has a silver lining

The stock market is easily in its worst shape since the COVID-19 crash…

Stocks are in freefall. The S&P 500 is now 18% off its highs and rapidly approaching a bear market. And he ticked another negative box to start May.

The market hit its first new 52-week low since March 2020. This is a sure sign that the trend is down. But there is good news amid the losses.

History shows us that this will not necessarily lead to a further decline. And that will almost certainly allow for a major outperformance in the years to come.

Let me explain…

Nobody likes to lose money in the markets. It hurts to see his balance decline. And it’s not just because of the losses… It’s also because of the unknown – not knowing when things will turn around.

The sentiment is negative, given what has happened this year. But if you’re inclined to ditch the stock market altogether, that might not be the best decision…especially if you don’t need your investment for a few years.

You see, history shows us that falling prices are not always bad. Instead, when stocks hit a new 52-week low, it often sets us up for future gains.

This is what we see now. The S&P 500 hit its first 52-week low in years in early May. Looked…

Again, the trend is down. We are damn close to an official bear market. And no one knows for sure when the bleeding will stop.

It’s scary… But you shouldn’t give up. New 52-week lows are rare – they’ve happened less than 1% of the time since 1950. But they shouldn’t have you running for the hills.

Instead, stocks tend to behave in the short-term average after similar setups. And if you have a longer time horizon, outperformance is almost certain. Looked…

Surprisingly, we only saw 23 new 52-week lows during this 72-year period. Even more surprisingly, stocks don’t tend to continue falling after they emerge.

In fact, they usually have surpass over the next six months – and will only slightly underperform next year.

Things also get a lot better in the long run. The typical two-year return for US stocks is 16.4%. But that number jumps to 24% after these kinds of extremes. And the yield over three years goes from 25.6% to 31.2%.

This is what we should expect from here… Falling prices set us up for future gains. While that won’t ease today’s pain, it’s a wise perspective to keep in mind during tough times.

Most investors missed this setup. They sell when they should sit still. But you don’t have to make the same mistake yourself.

of course you should wait for the trend to move in our favor before diving back into speculative trading. But if you’re holding stocks for the long term, now is not the time to sell.

Good investment,

Brett Eversol

Further reading

“When the bulls go, stocks go up,” Brett says. Many investors are currently putting their money aside due to rampant market volatility. And that creates the perfect opportunity for us to play against the tide when the trend reverses… Read more here: Bull Stock Markets Are Gone.

“Falling under investor fear right now is a bad move,” writes Chris Igou. With people leaving stocks in droves, the market is in a downtrend today. But if we follow the crowd and let fear drive us out of the market, we will miss all the bulls… Read more here: Investor fear points to rising stocks.

THE INFLATIONARY LANDSCAPE TAKES ANOTHER VICTIM

Today’s business is losing its footing in this uncertain economy…

daily wealth readers know that we rely on several types of companies to inform us about consumer sentiment. When people spend money, it’s a good sign for the economy… But as inflation and pandemic disruptions continue, consumers today have less purchasing power. A company shows us that this economy is hard on families…

Carter’s (CRI) is a $3 billion children’s clothing retailer. It operates nearly 1,000 directly owned stores and an e-commerce site. But parents today have a lot of worries, including rising prices and, more recently, a nationwide shortage of infant formula. And fewer people visited this retailer… Over the past year, Carter’s closed a net total of 67 stores due to delayed in-person sales. And in the first quarter, sales fell 1% from a year ago, while net profit fell 21% to $67.9 million.

CRI’s shares have been tumbling for some time. They are now down more than 30% from their most recent high and just hit a new 52-week low. As cash-strapped parents cut spending, retailers like Carter’s will suffer…