The last ten years have treated stock market investors kindly. We currently have one of the longest running bull markets in history, with unprecedented growth across most sectors. Tech has exploded, with companies like Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) hitting new records for market capitalization.
With all the gains, investors have flocked to growth stocks. However, there are top analysts who warn that a crash is inevitable. Are the warnings valid?
What Constitutes a Bear Market?
Bear market is the term used when stocks hit an average 20% downturn from peak. This would mean that indexes like the NASDAQ and S&P 500 would have to sustain heavy and consistent losses. Although it’s hard to imagine this situation today, there are some analysts who believe that it is possible.
Stifel, an investment banking and brokerage firm, recently released a note from their Head of Institutional Equity Strategy that stated a bear market would be “assured”. The firm believes that this could happen “within 6-12 months”.
We have had slight downturns in recent months. In fact, the start of the year was one of the most volatile periods in recent memory. Trade tariffs, geopolitical factors, and emerging markets have all taken their toll on the stock market. The most amazing thing about the year so far is the fact that with all these negative influences, the market is still producing returns.
Goldman Sachs More Positive About the Future
Goldman Sachs is another investment bank that believes a bear market is incoming, however, their outlook for investors is more positive. While some analysts believe the crash would lead to widespread losses, Godman Sachs hinted in a September report that the bear market would simply mean lower returns. For long term investors this situation would be manageable.
While nobody can truly predict the timing of a bear market with total confidence, all investors should accept that market decline will occur. The market has always moved in waves. Interest rate increases could be one of the leading factors, while international tensions probably won’t help if they continue beyond this calendar year.
While now is not the time for panic or rapid selling. Every investor should be aware that the stock market will likely not continue to be as kind as it has for the last ten years.
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