By Justin Spittler, editor, Casey Daily Dispatch
U.S. stocks just had their best day in nearly a decade.
On Wednesday, the S&P 500 jumped 5%. That was its biggest one-day jump since March 2009.
This rally couldn’t have come at a better time, either.
I say that because U.S. stocks have been getting crushed. Prior to Wednesday, the S&P 500 was down 20% since October. The NASDAQ was down 23% over the same period. And the once high-flying FAANG stocks were down 30%, on average.
So, it’s only natural to get excited by Wednesday’s price action. But I wouldn’t dive back into the market just yet…
• The biggest rallies occur during bear markets…
It’s counterintuitive. I know. But the data backs up what I’m saying.
Prior to 1950, the 10 biggest rallies by the Dow Jones Industrial Average (DJIA) all took place 1929, 1931, 1932 & 1933. In other words, they happened during the Great Depression.
Of course, the world has changed a lot since then. But it’s the same story if we look at more recent data.
Since 1950, the Dow’s 10 best days took place during the following years: 1987, 2002, 2008, and 2009.
You don’t have to work on Wall Street to know that those were some of the worst years to own stocks. And yet, the market experienced monster rallies.
Why is this? Well, it’s simple.
• The market is more volatile during bear markets…
The selloffs are sharper. The rallies are more powerful.
In short, Wednesday’s huge rally is exactly the sort of thing you see during bear markets.
Of course, I have no way to know if we’re on the verge of another major financial crisis. Only time will tell.
But, as I’ve warned lately, there are more reasons to be bearish than bullish at this moment.
So, don’t rush back into stocks if the market has another day like Wednesday.
• Instead, focus on protecting the wealth you’ve built up in recent years…
Here are three ways to do that…
Take some chips of the table. Start by pruning your portfolio of overpriced stocks and highly leveraged companies. These sorts of positions get hit the hardest during major selloffs.
Hold extra cash. This will cushion you against big losses should stocks keep falling. It will also give you dry powder to buy stocks when better opportunities present themselves.
Own physical gold. As we often point out, gold is real money. It has preserved wealth for centuries because it’s a unique asset. It’s durable, easily divisible, and easy to transport.
It has also survived every major financial crisis in history. This makes it the ultimate safe-haven asset. Learn the best ways to buy and store it in our free special report: “The Gold Investor’s Guide.”
Investors who take these precautions will be in a much better position than those who jump back into the market on the first sign of strength.
December 28, 2018
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