THE BIGGEST MARKET RISKS RIGHT NOW

It seems like people are pretty nervous about the stock market right now.  A lot of people are seeking us out for the safety and protection we offer investors.  I am hearing a lot of comments from people about the market being overvalued.

Are they right?  Does anybody really know the answer to these questions?

The two biggest macroeconomic risks are still the risk of recession and the risk of inflation.  We have been dealing with the inflation risk for two years and the recession risk for about a year.

If the worst case happens for both of these risks, the market will definitely take a big hit.  Entering a recession would likely lead to a 25% to 30% drop in stock prices from the current levels.  An uptick in inflation would lead to continued tightening from the Fed, increasing the chances of a recession.

But recent inflation news has been positive, and the economy keeps chugging along.  GDP growth has been excellent, and unemployment is still at all-time lows.

I like to look at history for some of these answers.  If we exclude the pandemic driven mini recession of 2020, it has been about 15 years since our last “business cycle” recession.  Before 1990, recessions occurred about once every four years.  Since 1990, recessions have occurred about once every nine years.  Some people say we are due for a recession.

Our proprietary MARKET VALUE INDICATOR (graph below) suggests that the S&P 500 (the best barometer of the stock market) has moved into “overvalued” territory this year.  The rapid increase in stock prices since November of last year to March 1st this year has taken the indicator from a level that was “undervalued” by 10% to being “overvalued” by 6%.  But please note that we do not do any trading off of this indicator.  It is not a predictive indicator because the stock market is so irrational. It is just a guide.

The reality is that these market and economic risks always exist for stock market investors.  And, unfortunately, most of the risks come from unknown factors.

The risk of stock market meltdowns is the price of admission for investors. No one ever knows the timing or the magnitude of recessions or bear markets, but you know they will happen at some point. Those risks are ever present even if they don’t happen very often.

The biggest risk as I see it for most investors has nothing to do with the economy or markets at all.  The biggest risk is you.

There is a risk that you’ll abandon your investment plan and make a big mistake at the worst possible time.  Fear and greed cause most people to make poor decisions.

Guessing at what is going to happen or listening to someone predicting what is going to happen rarely works out.  Even if you get lucky and reduce your stock exposure at the right time, you will lose because you won’t get back into stocks at the right time.

This is why I created the Beyond Buy & Hold system.  The only way to win in the investing game is to focus on the long-term.  We can be quite confident that the stock market ten years from now will be much higher than it is right now.  But nobody knows what stock prices will look like in six months or one year. 

The best investors need a disciplined approach to owning the best funds and a proven quantitative system to avoid the worst of bear markets.  Our MARKET SIGNALS investing tool gives investors just that.  It puts the odds in your favor.

The stock market is in an uptrend 85% of the time, growing at double digit rates. You want to be aggressively invested (100%) most of the time. Having a proven system to sidestep the bear market crashes gives investors the confidence to invest aggressively in the stock market.  You don’t have to worry when you know you have a system to avoid the damage caused by bear market crashes.

Changes to your investing strategy based on short-term reactions that are not based on proven and tested data will hurt your investing results. You need a disciplined and proven system to win in the investing game. Stay disciplined my friends.

Happy Investing,

Phil

---

Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.