Thursday marked another dramatic day on Wall Street.
Most stock indices have dropped by about 10%, sliding into the bear market territory for the first time in nearly 11 years.
I’m not going to lie. Even I felt some anxiety.
However, the next morning when I woke up, my mind was clear once more… this is the time to be buying.
Because ultimately, it’s reason that should be driving your investing decisions, not fear.
And I have plenty of reasons to be bullish.
Five Reasons Why One Year From Now Economy Will Be Booming
I’ve already written why within the next year the economy is going to rebound from this crisis strongly.
But just in case you haven’t read these words, I will repeat them (you can skip to the next section if you did).
First, central banks are going to throw everything they can at this problem. That means more money printing, and, in the case of the United States, zero-percent interest rates. This means that companies are going to be awash with capital to invest in their businesses or repurchase shares.
Second, governments are going to throw everything they can at this problem as well. Fiscal stimulus, tax breaks, loan coverage, and so on… again, this will benefit corporations and keep unemployment levels low.
Third, we will have record-low energy prices, which will also benefit economic growth.
Fourth, when the Fed cuts to zero, mortgage rates will be at record lows, which will put more money in people’s pockets to spend.
And fifth, this crisis wasn’t caused by a bubble, but rather by a freak occurrence. So, a prolonged bear market where financial excess needs to unwind is again out of the question.
Lessons From History
I said I have plenty of reasons why I’m bullish, and I meant it.
So, here’s another one—history.
And it tells us that times like these are not as bad as they seem.
Let’s first look at the most recent stock market crash, the 2018 global stock market slowdown.
That December, the S&P 500 dropped by 14% in three weeks, and, according to some measures, even briefly entered a bear market.
If you look at the news flow that was circling at the time, the headlines warned about a recession, the inverted yield curve, and the S&P 500 triggering a death cross.
All of it was negative.
Yet, just one week after the crash, the stock market reached its bottom, rebounded, and went on an epic rally.
The turnaround was triggered by the Fed when Chairman Powell promised to stop hiking interest rates.
Of course, the current decline is far worse. So, let’s look compare it to another perilous period—the 2008 crash.
At the height of the last financial crisis, the S&P 500 declined by 26% in two weeks.
Here, the news flow was even more negative. Lehman Brothers just collapsed, analysts were predicting a global depression, and there were talks of the whole financial system breaking down.
Three months later, though, the stock market reached its bottom and went on to rally 70% in 10 months.
Again, let me remind you, at the time, people thought the world was falling apart.
And, also again, it was the Fed that turned the market, this time by announcing QE1.
But, let’s look at another example even further back to the dreadful October 1987 and the worst stock market crash in modern history—the Black Monday.
At the time, the Dow Jones declined by 26% in three weeks.
Here are some headlines circling in the newspapers:
“Does 1987 Equal 1929?”; “Billions Lost In Trading”; and “Panic!”
Pretty scary stuff.
Yet, it took only six weeks for the market to bottom after that.
And guess who saved it again by stepping in as the lender of last resort… the Fed.
Be Greedy When Others Are Fearful
As you can see, past examples teach us that in times like these, you should not panic and sell everything. You should be bullish.
All that’s really missing from the equation now is a big announcement from the Fed, which I expect to happen within a week. Most likely, they’ll step in as the lender of last resort.
Sure, the markets could decline further from here.
But as a long-term investor, my job is not to pick the exact bottom.
I buy when stocks are cheap.
And if they happen to fall further, I buy even more.