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The stock market has done incredibly well over the past few years.
Nowadays, we are getting more and more warnings of a potential market crash.
How can you survive one? Let’s dive in right away.
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Why the Fear?
The S&P 500 is down less than 2% over the past month.
It’s up more than 12% so far this year.
But the Fear & Greed Index is showing ‘Extreme Fear’.
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What’s going on?
Valuations Are High
Stocks do look expensive (especially in the United States).
If we look at the 10-year P/E ratio, we get the following:
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This tweet from Tobias Carlisle also sums it up quite well:
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It states the S&P 500 is so richly valued we can expect negative returns in the years ahead.
Another great metric? The “Buffett Indicator”.
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The Buffett Indicator compares the total value of all U.S. stocks to the size of the U.S. economy to show if the market is cheap or expensive.
As you can see, the market also looks expensive based on this metric:
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But up until now, investors have been willing to pay up for US stocks.
Extreme Concentration
The S&P 500 has beaten nearly every other strategy over the past few years.
Here’s the comparison against non-US stocks, and value stocks.
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A lot of the performance of the S&P 500 has been driven by the amazing performance of Big Tech companies, known as ‘The Magnificent 7’: