Because of how quickly the S&P 500 (SNPINDEX: GSPC) can lose double-digit percentage points, the idea of such a loss is worrisome to many. However, if you have a long time horizon for your investments, a crash or sharp correction may provide an exceptional opportunity to develop wealth.
For the time being, there are a number of factors that point to a significant decline. Over the previous 71 years, the S&P 500 has had 38 double-digit percentage drops in the index. Every 1.87 years, the value drops by at least 10%.
Similar to the other eight bear market bottoms, rebounding from these lows has been a lengthy process. There have been at least two 10 percent falls within 36 months of the bear market bottoms in each one of these rallies. We've been out of the bottom for more than 20 months, and there hasn't been a single decline in double digits.
It's also important to note that valuation is a major concern. S&P 500 Shiller P/E ratio stood at 39.5 on Monday, Nov. 22. It is important to remember that the Shiller P/E ratio accounts for the inflation-adjusted earnings over the previous decade. It's worth noting that the last four times the S&P 500's Shiller P/E exceeded 30 on a sustained basis, the index fell by at least 20%.
Margin debt has also increased significantly over the past year. Capital borrowing to buy or short-sell securities has only surged by 60% or more three times since 1995: immediately before the dot-com bubble burst, a few months before the financial crisis, and recently.
More than enough triggers point to an impending stock market crash or sharp decline
Three definite winners would be available if a stock market meltdown were to occur
Mastercard is a key player in the world's largest consumer market, the United States. In 2018, it accounted for roughly 22% of credit card network purchase volume. Mastercard also has a multi-decade chance to expand its infrastructure to unbanked portions of the world.
Bristol Myers Squibb is another sure-fire winner amid a crash or correction (NYSE: BMY). Most healthcare stocks are highly defensive. People get sick and need drugs, devices, and healthcare services regardless of the economy or stock market. As a manufacturer of branded drugs, Bristol Myers certainly fits the bill where people indirectly drives its revenue
2. Bristol Myers Squibb
Anyone who has used Amazon's massive online marketplace knows it well. eMarketer predicts Amazon's marketplace will handle 41.4% of all online orders in the US this year. For reference, the nearest competitor accounts for roughly 7% of internet sales in the US.
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