It might be the last thing you want to hear, but it’s the truth: A stock market crash is inevitable.
Since the March 23, 2020 bottom, investors have enjoyed a historically strong bounce-back rally — the widely followed S&P 500 (SNPINDEX:^GSPC) has gained an impressive 90%. But both history and valuation metrics unequivocally suggest that a big drop is upcoming for the stock market.
History is pretty clear that trouble lies ahead
For example, there have been one or two double-digit percentage declines within the three years following a bottom in each of the previous eight bear markets prior to the coronavirus crash (i.e., dating back to 1960). Although bull markets tend to last years, rebounds from a bear market are never this smooth. We’re nearly 15 months past the March 2020 bear-market bottom in the S&P 500 and have yet to see anything close to a double-digit correction.
To add to this point, data from market analytics firm Yardeni Research shows that there have been 38 double-digit declines in the S&P 500 over the past 71 years. That’s a crash or correction, on average, every 1.87 years. Though the market doesn’t adhere to averages, it does give a general sense of when to expect these hiccups.
On a valuation basis, the S&P 500’s Shiller price-to-earnings (P/E) ratio is a waving red flag. The S&P 500’s Shiller P/E — a measure of inflation-adjusted earnings over the previous 10 years — almost hit 38 earlier this week. That more than doubles its 151-year average, and it’s the highest level in nearly two decades. The previous four times the Shiller P/E surpassed and held above 30 during a bull market rally, the index subsequently declined by a minimum of 20%.
Make no mistake about it — a stock market crash is coming.
Every crash or correction is an opportunity for patient investors to make money
However, a crash is no reason to duck and cover. While history may signal trouble ahead, it also tells us that each and every double-digit decline has been a buying opportunity. Eventually, every big drop in the major indexes is erased by a bull-market rally. When the next crash does occur, the following five high-conviction stocks can be confidently bought hand over fist.
CrowdStrike Holdings
Cybersecurity is projected to be one of the safest double-digit growth trends this decade. No matter the size of the business or the state of the U.S./global economy, protecting enterprise and consumer data is paramount. This means cloud-based cybersecurity stock CrowdStrike Holdings (NASDAQ:CRWD) can thrive in any environment.
CrowdStrike’s success derives from its cloud-native Falcon security platform. Because it’s built in the cloud and relies on artificial intelligence, it’s growing smarter at identifying and responding to threats all the time. It’s…
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