Market chaos may be your last warning

I’m not surprised by the recent market downturn.

I have seen record growth among individual investors in the past, while the big players were cautious.

“Warning signs are starting to accumulate, it is not a bad idea to take some money from the table,” I wrote.

I hope you did. But what about now?

Well, I hate to say that, but – after falling more than 2,500 points on the Dow, many of them in the last four trading sessions, it’s a little late to turn into a new super bear on the market.

Is the downturn a potential “ominous sign” of the 2018 stock market downturn? Absolutely.

Can the market decline further in the coming days? Of course.

But for almost three decades, as an investor, a former market journalist, I have not yet seen the raging bull market, as we have felt, end in a “complete standstill”, constantly sinking from the centuries-old rock. style Wile E. Coyote.

Red flag of the 2018 stock market crash?

  • Still in 2000 In March, the S&P 500 fell 11% in just a few days as the dot-com boom ended. But just five months later, it reached a milestone, setting a new milestone in history.

  • In July 2007, the S&P 500 grew by 10% year-on-year. The sharp sell-off returned all those gains by August. However, in October, the index rose again, setting a new all-time high.

So do not think about current actions that say: “Get out of the market now.” Chances are, you’ll probably have a second, better chance of doing it somewhere down the road before the market crash.

Instead, think of these as actions that you must take on a regular basis.

This is a red flag for interest rates, market risks, the need to move your portfolio to value-added investments that can withstand or benefit from higher interest rates.

This is why. Over the past decade (indeed, over the last three decades) we have come to realize that interest rates are only going in one direction – low, low, still low.

During that time, we observed that the cost of borrowing (as measured by the benchmark 10-year treasury bill) dropped from 15% in 1980 to 1.36% in July 2016, the lowest level ever.

But here is the thing. Over the past 18 months, the cost of the same loan has almost doubled to 2.85% in the last week.

It has huge consequences for the shares.

For example, right now the average dividend yield on the S&P 500 is 1.85%. But that comes with the risk of losing your investment (as we all recalled last week).

Or … you can have your money-free, guaranteed return plus interest right now if you buy a 10-year treasury bill with a 2.85% yield.

That is why the increase of interest rates is a big problem in 2018.

To have a decent return on equity risk, we need to look at the S&P 500 dividend yield, which is much higher.

It will not be overnight. This will be a long process of adjustment for the overall market. But there is no better time than now to start revaluing your stocks, stocks E stock exchanges (ETFs). Until the stock market slump in 2018, you can gradually move your investments where there is better value – higher dividend yields.