The stock market has topped out and is headed down.The Dow Jones Industrial Average peaked at 45,014 on December 4, 2024, and was at 41,911 by March 10, 2025, down 3,101 points or 6.9% in just over three months.The S&P 500 Index peaked at 6,130 on February 18, 2025, and was at 5,614 on March 10, 2025, down 516 points or 8.4% in less than one month.The NASDAQ Composite Index peaked at 20,174 on December 16, 2024, and was at 17,468 on March 7, 2025, down 2,706 points or 13.4% in less than three months and technically a market “correction” (defined as a 10% or more decline from a previous peak). None of those index performances is a full-blown crash nor do they represent a market panic. Stock market indices are volatile, and they may partially bounce back by the time you read this. Still, down is down. We have to look at the reasons for this and use our predictive analytical techniques to see where the markets go from here.
A Crash Can Be Profitable While investors worry about a market crash such as a one-day crash of over 20% (this happened on October 19, 1987) or a one-month crash of over 30% (this happened in March 2020), those are not necessarily the worst outcomes for investors.The losses from the 1987 crash were almost 60% recovered in two trading days and were 100% recovered in less than two years. Losses from the 2020 crash were fully recovered in four months making it the fastest recovery of any crash in the past 150 years. Buying stocks in the aftermath of a crash can turn out to be a very good trade.To be clear, not every crash has such a rosy recovery. The 1929 stock market crash took 25 years to recover from its 1932 low. Stocks took 6 years to recover from the 2000 dot.com crash.
A Long Slow Grind Down Is Worse What is worse than a crash and quick recovery is a long, slow grind down. That does not mean a one-day crash of 10% or more. It could mean a slow grind down perhaps 20% or 30% over six months or even longer. A quick crash can recover quickly. With a slow grind, many investors tell themselves it will come back or “buy the dips” or hang in there. Then it will grind down some more until the retail investor finally capitulates with large losses.The most striking example of this is the stock market behavior during the lost decade of the 1970s. The Dow Jones hit an all-time high over 1,000 in 1969. From there, stocks fell during the 1969 recession, rallied in the early 1970s, crashed again in 1974, rallied back and then fell sharply in the 1981-82 recession. In fact, from 1960 to 1982, the Dow stayed in a 200-point range for 18 years! aily Reckoning
aily Reckoning
