Will The Stock Market Crash In 2020?

Summary

  • The U.S. stock market is near its all-time high.
  • Since 1928, the market has delivered negative returns in 4 out of 23 presidential years. So, a 17% probability.
  • The stock market crashing or not has little to do with whether it’s a presidential year or not.
  • Coronavirus outbreak is triggering a correction in the market.

The U.S. market trades at an all-time high. It has been a bull market for almost 11 years, whereas historically, whenever the stock market has appreciated for 10 years or so, there will be a market crash like the one we had in 2008.

Yet, 2020 is a presidential year. Some people believe that the market will continue to head higher until after the election because Trump will do everything in his power to keep the market up since he’s going for the seat again. And the U.S. presidential election isn’t until November 3. So, the market could go up another nine months or so.

Historically, in presidential years since 1928, the S&P 500 delivered negative returns in 4 out of 23 presidential years (17%), including:

  • 1932, during the Great Depression, the market was down 8%,
  • 1940, during WWII, the market was down 10%,
  • 2000, the Internet bubble burst, the market was down 9%,
  • 2008, a financial crisis from subprime mortgages in the U.S., S&P 500 declined 37%

The last big crash, which was in 2008 was a presidential year. It goes to show that when the market needs to crash, it needs to crash no matter if it’s a presidential year or not.

In all likelihood, whether the market will go up or down this year has nothing to do with whether it’s a presidential year or not, but keep in mind that in most years and over the long term, the stock market goes up.

If you ask me, I’m neutral about a crash. However, any event, such as the coronavirus outbreak, that is viewed to have a negative impact on the economy can drag the market down to its normal valuation of about 17 times earnings or even lower.

After putting the video together, it appears the coronavirus outbreak is triggering a correction in the market… Related headlines will likely cause volatility in the market in the near term. 

Resources & References

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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2 thoughts on “Will The Stock Market Crash In 2020?

  1. Henry M

    Crashes are inevitable, its just when and why. But really what matter. Are you holding cash waiting for a correction or are you worried that the value of you holdings will drop? Do you or should you sell to take profits of just ignore the market?
    We are retired and therefore no are longer adding funds to our accounts, just living off our cpp/oas and dividends. Being 100% DG equities we are not worried about a possible crash, rather would love to see the market go down and remain there. That way our dividend reinvestments will generate more income.
    As for those still accumulating, I prefered to be invested when I have funds to invest, rather than holding large sums waiting for the best time to buy. Buy quality at a reasonable price and add funds when and if the market does have a correction.

    1. Passive Income Earner Post author

      Hi Henry, thanks for sharing your experiences. I like your sensible investing approach: “Buy quality at a reasonable price and add funds when and if the market does have a correction.”

      I think at the current juncture, it makes sense to hold some cash (10% or more) to give oneself the opportunity to buy on corrections (or even a crash at one point). Having a dividend portfolio that has a decent/appropriate yield helps because it generates dividends for reinvestment (especially useful in a correction) as you mentioned and spending money for retirees.

      All the best, PIE/Kay

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