Stock Crash Is Now Out in The Open

Last week was a tough one in U.S. stock markets, as reported here. The Dow Jones Industrial Average fell 2.1%. The S&P 500 fell 2.5%. And the NASDAQ fell 2.6% led by declines in Meta (formerly Facebook) and Google (trading as Alphabet). This decline puts the NASDAQ solidly in correction territory, down over 10% from the high last July.

For a lot of investors, this drawdown comes after a long bull market in which they have made huge gains. It’s a hiccup in what has otherwise been a classic “buy and hold” market.

The problem is that that perspective has been warped by Wall Street propaganda and talk of a Goldilocks market and a “soft landing” from the Fed tightening of monetary policy over the past 18 months. That perspective ignores the facts.

Here’s what has actually happened: The Dow Jones Industrial Average peaked at 36,799 on January 4, 2022. That’s almost two years ago. The Dow has been down 12% since then.

The S&P 500 peaked at 4794 on January 4, 2022 and is 4117 today. That’s down 14% in less than two years.

Finally, we have the NASDAQ Composite, which peaked at 16,057 on November 19, 2021, almost exactly two years ago. That index is at 12,643 today. That’s down 21% in the past two years.

So, that’s the harsh reality. In less than two years, the Dow is down 12%, the S&P 500 is down 14% and the NASDAQ is down 21%. When those numbers are adjusted for inflation, the real decline is down 14% on the Dow, down 16% on the S&P 500, and down 24% on the NASDAQ.

Still feel like it’s a great market?

It is true that stocks crashed in 2022 and rebounded in 2023 before heading down in the past few weeks. Still, that 2023 rebound was not enough to recover the 2022 losses and now the markets are headed south again.

Investors suffer from “recency bias,” which is a tendency to remember the most recent events that have happened while forgetting about slightly older events. Investors need to overcome that particular bias.

From 1969 to 1983, the stock market went nowhere. The Dow Jones started and ended that 13-year drought right around 1,000. But the period from 1977 to 1981 was one of the worst bouts of inflation in U.S. history. When the “flat” Dow is adjusted for inflation, investors actually lost more than half their wealth in real terms.

Don’t listen to the buy and hold crowd. They have their own agenda. There are times to get out of the stock market or at least lighten up on equities and wait until the market finds its footing. This looks like one of those times.

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