Paving the way for better future returns.
The solution to a stock market correction (10% drop) is often a bear market (20% drop.)
It sounds odd. If investors are already upset with a 10% decline of their investments, how would losing another 10% help?
But it’s all about the time horizon. historically bear market years have been followed by above average returns over the following years.
This chart from Ben Carlson’s site shows that after a 25% decline of the S&P 500, the next 3, 5, and 10 year cumulative returns have always been positive going back to 1950.
This is why it’s important to remain long term bullish and stay the course, continuing to invest for those who are still accumulating wealth.
Another indicator to pay attention to is the percentage of stocks in the Nasdaq 100 that are still trading above their 200 day moving average.
This had fallen to a low of 7.84% in recent weeks.
This is a big deal because over the last 25 years, this figure has fell below 10% only a handful of times… 2002, 2008/2009, 2018, 2020, and this year.
Excluding this year (because we don’t know yet,) each of those previous times have coincided with a bottom of the stock market’s broad sell-off.
Furthermore, when the number fell below 10% in the past, the 1 year future returns of the index have always been positive. 🙂
The average return is the in the mid double digits.
Other signs the market may be near a bottom
There are a lot more indicators that I’ve found that seem to suggest better investment returns ahead. 😀
I break them down in my latest video here, “higher returns on the way:”
This doesn’t mean we are necessarily near the market bottom now.
Stocks don’t move in a straight line, and things could get worse before getting better.
What I am saying is if you invest in a broad basket of stocks today, your 1 year expected return will be higher than investing at any other time of this year so far.
And your 3 year expected return is even higher!
There are no certainties in the markets. Only probabilities.
So it’s important to know what’s going on and make sure the odds are in our favour. 😀
Random Useless Fact:
Norway consumes the highest amount of pizza per capita, about 11 lbs a year per person.