One question top of mind of many readers is whether the stock market will crash in 2017, after a gigantic 7 year bull market. Although scandal caught the public attention and provided desirable scapegoats, it would be wrong, nonetheless, to see financial malpractice as other than a very minor contribution to stock market misfortune. The way stocks are going so far in 2016, it doesn’t look like it will be a great year for investors. It didn’t recover all the way to back to its peak value of 1929 until the middle of the 1950s.
Many investors who had directly experienced the market at its most capricious called for some level of state regulation, especially as there was a lingering suspicion that unfair practices may have been responsible for the debacle. During the final three months before election day, if the stock market goes up the incumbent party almost always wins. Despite this collapse in profits in 1986/1987, stock prices marched to new all-time highs. Although the workings of the New York Stock Exchange can be quite complex, one simple principle governs the price of stock.
The worst performances were in the financial sector and the entertainment industry where many major movie companies flirted with ruin. NDR notes that when price to earnings ratios are above 20, as they are today, the market has about as much chance of going up 12 months hence as it has of going down. On each progressive drop, buyers rushed in for the eventual bounce that they knew was coming the next day, or the day after that.
Business looked first to retained profits to fund investment on which future profits were based but did so in the clear knowledge that any shortfall could easily be addressed by approaching the market. That’s easy – because a stock market crash isn’t obvious and anybody claiming they know so with near certainty is being untruthful. These three stock market crash warnings show there might not just be a market crash, but a historic one. The Great Depression started with the Great Market Crash, causing serious economic problems in some other countries.
By December, the average expectations returned to where they were prior to the crash. This led to a sense of security over the weekend, as investors felt the market could rebound. Back in late 2007, Hussman warned us about what was coming in 2008 , but most people did not listen.