The Stock Market JUST Went From BAD To WORSE | How To Prepare

All right, so this is getting out of control. First, we had Facebook plummet 26% in a single day. Then we had Netflix fall 35% overnight as they lost subscribers. Shortly after, Walmart drops 25% on missed earnings. And then the nail in the coffin: Tarjay crashes 30% overnight from rising costs, falling demand, and the one that none of us expected—too much inventory. That's right, stock prices aren't the only things falling around here.

With investors holding on to the highest amount of cash since 2001, experts warned that there could be a lot more pain ahead, especially with the next rate hike scheduled in less than a month, where they've openly said that they're no longer concerned with the state of the market and they're willing to fight inflation at all costs.

Because I have to say, after reading the research of the blog Market Sentiment, there is a calculated way to overcome the odds and make a hefty profit if you could follow a few basic strategies. And smash the like button for the YouTube algorithm. Okay, that last part's not required, but it does help out my channel tremendously. Plus, to sweeten the deal, if you subscribe in the next 3.42069 seconds, I'll show you this picture of a really cute guinea pig wearing glasses.

Alright, so in terms of where we currently stand, a Guggenheim analyst suggests that stocks could be poised to decline 45% to 75% from their peak—much like the collapse of the internet bubble—all because of a delayed reaction of the Federal Reserve to keep raising interest rates until they are sure that inflation has gone away. At the same time, the world's largest retailers are beginning to see a shift in demand, setting off a chain reaction that honestly very few people expected.

This all started when businesses experienced massive shortfalls of inventory from supply chain constraints, which drove up prices. As a result, companies began to place massive orders ahead of time to make sure that they would have enough product up front to satisfy all the demand. However, as the FED raised rates, the market began to soften. Companies started to lay off their workers with anticipation of slowing demand, and when prices had risen to a point where consumers began cutting back, businesses were left with too much inventory, putting pressure on profit margins and causing their stock price to fall.

Basically, in other words, throughout 2021, demand was so high the company spent a lot of money making sure that they would have enough product. But now demand is slowing down, and they have more inventory than they know what to do with, causing the mass sell-off that we're seeing throughout the market.

Interestingly, this is what's referred to as the bull effect, and it's happening right now. Essentially, when businesses order inventory, they do so by forecasting demand, prices, and shipping. If they anticipate a strong holiday season, for example, they'll load up now with the expectation that they'll make a lot more money by the time it's all sold.

Although, as this incredible sketch illustrates, when businesses order more, manufacturers order more, so suppliers make even more—eventually leading to a point where there's a massive surplus in excess of what the markets can handle. That, in combination with slowing demand and higher interest rates, is causing the market to fall at a rate that we have not seen since 2020.

And now retailers are worried about stagflation concerns, where inflation remains high with low growth and higher unemployment. But in terms of what experts believe is going to happen in the short term, look no further than CNBC, who outlined what they call the seven dragons that need to be tamed in order for the market to begin going up in price.

One: We have housing. For the first time in what seems like an eternity, home prices are beginning to soften. For example, Redfin says that in April, 60% of home offers written by its agents faced competing offers compared to 63.4% a month earlier and 67% a year ago. On top of that, the Census Bureau said that the number of permits being issued for new single-family homes fell 4.6% in April from the previous month. Mortgage demand is also down by 12%, and with new constructions coming on the market, home prices might begin to stabilize.

Second: The automotive industry. The entire situation is a mess, but for those out of the loop, the auto industry was plagued by shutdowns and shortages that delayed vehicle manufacturing. When fewer cars were built, the price of everything else began to drive up. As a result, used cars were selling for more than new—their prices increased faster than homes in the stock market combined. And that worsened inflation.

But now, used car prices have fallen 6.4% since January. The supply chains begin to normalize, and throughout the next year we could see their prices begin to reverse, pun intended.

Third: The labor market. Earlier this year, there were concerns of a wage-price spiral, where employees would have to earn more to pay for the products that cost more, leading to employees that earn more repeating the cycle over again. But with widespread layoffs and declining wages, a wage-price spiral seems less and less likely to happen.

Fourth: We have the Russia-Ukraine war. For the time being, we've seen commodity prices, like oil and grain, skyrocket, leading to brand new record gas prices across several states. That, of course, increases the cost of shipping, travel, transportation, and everything else that makes up inflation readings, leading to a greater likelihood of more rate hikes.

Alongside that, we also have fifth: higher freight costs, which lead to higher prices getting passed on to consumers. It's said that these costs will need to begin coming down if we're going to get inflation under control.

Sixth: Airfares are also increasing, leading to less travel, less spending, and fears that this might contribute to an upcoming recession.

And finally, seventh: consumer spending will need to see a comeback. Because throughout 2022, rising prices are deterring buyers and leading to low or sometimes even negative growth. If those seven categories begin to return back to normal, then we may see a market begin to recover.

But until then, like I mentioned earlier, there is a proven way to overcome the odds and make a lot of money if you follow the data outlined by Market Sentiment.

Now, in terms of the calculated data behind how to invest throughout these next few months, look no further than the blog Market Sentiment. I'll link to them down below in the description. Because I have to say, throughout this last year, they have put out some of the most incredible analysis that I have ever seen, and this one is no exception.

They decided to research the last three major market corrections throughout the last 20 years: from 2000, 2007, and 2020, to figure out the ideal time to buy, wait, and double down during a dip to maximize profits and minimize losses. And what they found was very interesting. Even though the S&P 500 declined anywhere from 18% to 55%, the investing strategy of doubling down on the dip produced the highest overall return, just above the investor who continued to invest as usual.

On the other hand, the least profitable investor was the one who waited for the market to recover, which resulted in 35% less profit. But since we all know that long term the market goes up, how did they do in the short term?

Well, as you can see, one year later, the person who simply held and waited saw a loss of 28.8%, while those that doubled down saw a positive half a percent return. And within five years, every single buying strategy was profitable, except if you did nothing—in which case, you're still down.

Now, of course, the market as a whole is not just one company—it's a collection of thousands that all make up the prices that you see here. And in the last several downturns, they've shown that semiconductors, tech, and financials do the worst, while consumer staples, energy, and healthcare do the best, relatively speaking, of course, because they were all down. Although that just means that some industries get hit a lot harder than others.

So as a flight to safety, value tends to be a bit of a hedge. The other consideration is that throughout previous crashes, it took anywhere from a few months to a few years to bottom out, and it took anywhere between 10 years and 16 years for the market to double from its previous all-time high. However, it only took 2.9 years on average for the market to double from its lowest point during the crash, meaning that the biggest returns come from the lowest points.

Even the NASDAQ, on averages, returned 22% after a year, 52% after three years, 87% after five years, and a whopping 328% over 10 years after the start of a bear market.

Now, if we look at the average correction of under 20%, we're currently sitting at just under the average of 133 days, and this comes at the same time consumer spending is nearing the worst it's been since 2009, suggesting that maybe this could be a pretty good time to continue buying.

As far as my own thoughts about this and how I'm investing, I've said it before, and I'll say it again: riches are made in recessions. And that is a perfect motto to live by. The fact is, had you invested during the March 2020 bottom, when everyone was worried about the collapse of our entire economy, you would have made a lot of money.

The same applies during any mass sell-off or panic event. For the general consensus seems to be it's going to drop more—things are going to get worse; I'll just wait to buy and lower. From what I've seen in the past, this exact mantra is being repeated right now, today.

And even though prices could continue falling lower, we should be able to reframe our beliefs that this is beneficial, as long as you're not a few years away from retirement, in which case you probably shouldn't be in high-risk equities anyway.

The fact is, the best time to buy is probably when most people believe it's a bad time to buy. And it's about to get a lot worse. I think if the market is not prepared for something to go wrong, it's probably trading higher than it should be.

So don't fear drops like this, even though they're hard to watch. No one likes seeing their money get flushed down the toilet. If you're not planning on selling and you don't need the money for the next 10 years, just consider it a 30% off discount. Continue buying as normal, and don't let it hold you back.

In the moment, no one knows what's gonna happen. And yes, it could absolutely continue falling over the next year or maybe even two years. But long term, if you're diversified and don't invest in companies that can't audit their financials, the new should be okay.

As long as you smash the like button and subscribe for the YouTube algorithm, so thank you guys so much for watching! And don't forget to add me on Instagram and also subscribe to the Market Sentiment blog. I'll link to them down below in the description because they've done a tremendous job gathering all of this information that helps you and I become better investors. Thank you so much for watching, and until next time.