Wall Street crash of 1929

The US market is up like 16% YTD, and international is up like 29% YTD, what else do you want? More on reddit.com

You go first. There is no way to know how things will play out. Bonds, stocks, real property, gold, etc., all have their heyday. This is an argument for diversification. I will post a Vanguard piece on bond vs stock allocations. One good thing about the bond allocation, was the worst year they had, in about 100 years, was only down about 13%. We are close to an all time high. The tax bill passed, which is the primary recent impetus. Average rate of return, is not actual rate of return. The sequence of returns matter. If you have a 40% loss during retirement, you may not live long enough to break even, much less beat inflation. Diversification is crucial. Let’s say you retired in 2000. You are 100% equities. You take a 40% hit. You are not ahead till 2008. Then you get another 40% hit. You may not be ahead for the rest of your life. Another thing to think about is how averaging negative years, minimizes the actual impact and misleads. Let’s say you take a 40% hit. You have to make a gain over 60%, to get back to where you left off, and that does not take into account inflation. If you factor in inflation, Spy was essentially flat or negative, from 1966 to 1982, so while it may not collapse, being diversified beyond the stock market is worthwhile. There have been a number of corrections and bear markets that caused problems. Two roughly -40% ones under Bush 2 alone. Spy corrections The Great Depression (1929-1932): -86% over 34 months, taking approximately 25 years to recover. 1937-1938 Fed raises rates, market down 58% Global Financial Crisis (2007-2009): -57% from its peak in October 2007 to its low in March 2009. Dot-Com Bust (2000-2013): -49% as the technology bubble burst. It took over seven years to recover. Nixon Shock/OPEC Oil Embargo (1973-1980): -48% drop occurred during this period. Black Monday (October 19, 1987): The S&P 500 experienced its largest single-day percentage loss, falling -20.47% in one day. More on reddit.com

Crashed down to multi week lows? More on reddit.com

On this subreddit we mods don't like predictions about stock-market crashes. They are notoriously tricky, for the reason already given by another commenter. It is fairly easy though, to explain why the current situation is so troubling. I'm going to concentrate on that. During the pandemic the Federal Reserve performed very expansionary monetary policy. Other Central Banks across the world did something similar. As it turned out that policy was too expansionary. Inflation was caused by various factors including pandemic-induced supply chain problems and the expansionary monetary policy. As a result, inflation has been high for quite a while now. Over on r/badeconomics Integralds gives the path of the CPI price-level compared to the Fed's aim . The price level is now far higher than the Fed's intended path. Since 2020 inflation has averaged 5.25% rather than the 2% aim. If inflation went to 0% next month and stayed there it would take several years for the Fed to get back to it's intended price-level path. This leads us to the current problems. The Fed must raise interest rates to counter inflation. It must contract the money supply or at least stop it from expanding further. Raising interest rates is contractionary. It will raise interest costs and deter investment spending. This affects the stock market in three inter-related ways. Firstly, companies can borrow less to expand, which affects their growth prospects. Secondly, stock speculators can borrow less to buy shares (margin loan interest rises). Thirdly, bonds become a relatively more attractive investment compared to stocks. (Notice, that only the first effect -probably the weakest one- applies to the wider economy.) When thinking about the US stock market you must remember that it has already declined a great deal. The S&P500 peaked at 4818.62 on Jan 4th this year. Looking just now it is at 3742.23, that's a fall of 22.3%. Has the stock-market fallen far enough, or has it fallen too far? I have my own opinions about that, but conventional economics does not give an answer. More on reddit.com