Potential Strategies to Protect Your Retirement Savings From a Sudden Market Crash?

Are we on the edge of the next major stock market crash, or can you expect these market gains to be extended, making this the longest bull market in history? Hey, my name's Casey Weade, CEO founder and certified financial planner practitioner here at Howard Bailey Financial. Today you're going to be joining us for an episode of the Retire With Purpose podcast. If you enjoy the podcast, check out a link in the description.

And if you have any questions, please drop your questions down in the comments section. I'll be sure to answer each and every one of those. I'm going to be joined by my good friend and co-host for the podcast, Marshall Johnson, also a certified financial planner practitioner.

We're going to be talking markets. We're going to share with you market history. We're going to talk through quite a few different charts.

We're going to talk about interest rates and inflation all to answer this question. Can this bull market run? So let's start though with comparing the market today as Ben does here with the eighties and nineties. And I think what caught my eye with this article is that I haven't heard anybody compare the market we've been in since the financial crisis to what we saw during the eighties and nineties.

I haven't seen anybody make that comparison. Maybe you have, but it's not one that I've seen popularized by any means. And let alone I've never seen anybody overlay the stock market's performance that we've seen from 2009 till today, to that of what we saw from 1982 through 1999.

Yeah. So I, I'm even guilty of this because just a couple of weeks ago I was talking with the team and I shared with them a chart that that Grant Hawkridge posted on, on Twitter. And he was showing that the current bull market that we're in is very young, right? And he's, he's saying the start date for that bull market was October 12th of 2022.

So we had the drawdown in 2022 starting in October. Hey, we're up, you know, a good amount, call it 50, 60% depending on when you listen to this, this recording, and it's lasted for 486 days. Well, what Ben is showing here on his article is he's saying, no, don't just go back to October of 2022, take it back even further.

Don't take it just to the, the, the bear market of 2020, go back even further, go back to the lows of the great financial crisis and compare where we're at today with what we saw in the eighties. Yeah. Well, and so here's the thing.

So you have to understand the difference between bull market, cyclical bull markets and let me just say that sickler cyclical and secular markets in general, whether those are bull or bear, and that's, that's often just glazed over. I don't think people really discuss that, uh, especially in the media. They're just talking about this bull market or that bear market and not really offering that in the appropriate context.

And if we look at the definition of a bear market, a bear market is going to be 20% down from the previous market size. That is the definition of the bear market, right? It's down 20% from previous highs. And if you think about what's happened over recent last 15 years and most recently, you know, the COVID crash, the COVID crash saw market fall 34% over the course of a month.

So you go, well, how could we be comparing the bull market of today to that of the eighties and nineties when we had a bear market, there was just a couple of years ago. So there's no way that we can make that comparison. Well, if you go back through the eighties and nineties, you're going to see the same thing, 1987, right? Everybody talks about 1987 and black Monday, the stock market fell 34% in a week.

So you said, well, was, did the bull market really last from 1982 through 1999? Did the bull market really last from 2009 until today, or is it shorter than that? Well, that's where the definition of cyclical and secular bear markets and bull markets come into play because a secular bear market is going to be a period of rising returns over an extended period of time. But it doesn't mean that there can't be a short-term cyclical bear market inside of that long-term secular bull market. And the same thing's true in a bear market.

You can have a bear market and then in that bear market, like, I mean, think about 2001 through 2011, 2000 to 2011, there were some good years in that period of time. 03 to 07. I mean, the market went up a ton, right? That was a good, that was a good cyclical bull market.

You got to think through your words before you just spit it out. Inside of a secular bear. Because you saw a period of 11 years where there's no market returns.

You can't call that a bull market. You can't call it a secular bull market. That is by definition, that is a secular, secular bear market.

And I think that's where it gets pretty confusing, right? That's where it gets pretty frustrating for individuals. Like, well, I thought we were in a bull market or I thought this was a good time or a bad time. And so you're telling me that good times and bad times can be pretty short lived.

Like we saw the COVID bear market was, was like five months, right? Before the market was back up above where it was before it dropped. And then we look at 2022 and that lasted from January to October. Let's just call it 10 months, right? That was a bad 10 months.

But then within the span of, you know, another 12 months after that, we were back and flying the other direction. So just understand that in the cyclical secular, secular trends, I can't even say it now we're saying it so many times, but these longer term trends, we can have these cycles inside of it that are shorter, like six months or nine months or 12 months. But if, if what Ben's doing here is he's comparing, you know, the, the eighties leading up to the.com blowout to what we saw going back to the great financial crisis through today, it's, it's amazing.

If you look at, so how long have we been in this secular bull market? It's been about 14 years. So we've been here for about 14 years. How long did it last from 1982 through 1999? We had 17 years.

So the question becomes, and that's a question being asked by Ben here is, can we squeeze out another three, four years out of this? Can we make this the longest bull market in history when it comes to the S&P 500 returns? Can we do at least as well as we did through the eighties and nineties? And you know, if, if we're trying to determine if we can do that or not, I think we can point to a couple of different data points. I mean, one is going back to this X post that Ryan Dietrich had and you're pointing out that, Hey, this is the, the, a very short cyclical bull market that we've been in over the last couple of years at just 18 months, 18, 19, 20 months, going back to October of 22nd. Yeah.

I mean, when you listen to this, and if we look at the history of bull markets going back to 1949, 1950, we'll find this is the shortest cyclical bull market within a longer cyclical, secular bull market than we've ever had with the average being 50, 60 months. Well, this is a pretty short period of time. So could we have some really good years and see this continue for the next few years? I think the answer is yes, especially with the potential around AI.

And if the AI boom continues, then we could end up in a very similar position that we found ourselves in, in 1999. Yeah. And I guess that's the leading question.

Number one, how much longer can this last? Number two, you know, what's to come after the end of this secular bull market. Before we go to talk about those interest rates. And because that is the other data point that I forgot to mention, and I don't mean to interrupt you, but I think it's important to make another couple other comparisons that were, you might be thinking about, you know, the 1987 crash, 34% down COVID crash, 34% down.

We saw a soft landing in 1994. The Fed announced a soft landing 1995. We see the soft landing come to fruition after the Fed rapidly raises interest rates.

So I just wanted to reiterate that. I mean, what do we see? There's a lot of comparisons between technology market performance, whether that's bull markets, bear markets within that longer secular, secular built bull market. And then there's also a lot of comparisons being made around interest rates and inflation.

So what are people saying about interest rates? MJ has had to set that up for you, right? Well, you know, normally people think about when the Fed is cutting interest rates that means that the economy is slowing down. That means that the Fed feels like they need to ease things to make it better. The reality is the stock markets was at or near all time highs when the Fed did cut rates here recently.

And a lot of people questioned whether the market was just about to go into a free fall because the Fed is starting to cut rates. It's recessionary. Plus we had the inverted yield curve.

So eventually we're going to hit a recession. So all these things are lining up with the election and all the concerns about that. And the reality is Ryan Dietrich went back and looked at the last 20 rate cuts.

Actually, there's been 20 of them since 1980, where we were near. So he posts this and I thought it was fascinating. One, that there's been 20 of these since 1980.

Now, to be fair, a lot of these were in the eighties. Remember how high interest rates were in the eighties. So a lot of these rate cuts were in the eighties, early part of the nineties.

So this hasn't been much of a thing in the last 10 years. But if we look at the last 20, there are instances where the market goes down over the next month, maybe even four or five where it goes down over three months. There's only a handful where the market was down in the six months that followed the first rate cut.

When we were, the S&P was near all-time highs, which is what we just did. And in all instances, all 20 instances, a year from that first rate cut, the S&P was positive. I mean, sure.

We haven't seen a lot over the last 10 years, but we did see quite a few in the nineties in, in addition to the eighties. And we, we saw rate cuts within 2% of an all-time high 2019, 19, 19, 96, 95, 92, 92, 91, 91, 91, 90. And half of them are from 90 till today.

There's not very many that we've seen over the last decade, but in a hundred percent of instances, when we've seen a rate cut within 2% of an all-time high, we see a positive return a hundred percent of the time over the next 12 months. Yeah. Within average return.

That is counterintuitive because most people are going to go, well, they're cutting rates because what have we gotten used to over the last, you know, since the financial crisis, we've gotten very used to this being the Fed's primary mechanism for controlling the economy. They go, Oh, there's a problem in the economy. We're going to cut rates, you know, but there, there's other reasons that they do those rate adjustments as well that don't pertain directly to the economy because we're also focused on inflation control as well.

Yeah. And it's a dual mandate, right? But the other thing we, we understand too, is, is you alluded to, you know, that period of time in the late nineties, maybe we're in a similar place here. We can see in 95, they cut rates in 96, they had a period of cutting rates that did lead to a blow out of the.com bubble.

You can draw comparisons to the, the internet age versus the AI age that we're going through. So it's not unreasonable to think once we, once we piled this onto the fact that it's not just the magnificent seven anymore, the earnings are broadening out. We're starting to see corporate profits broaden out, you know, companies are doing well.

People have jobs, people are spending, we've got a consumer driven economy. All these things are positive and tailwinds. We don't, we don't get this when we watch the nightly news or read the newspaper, but there's a lot of positive things that to me could lead to this market continuing to push and maybe have a blowout over the next 12, 18, 24, 36 months.

Who knows? That's the moral of the story. Those are the things that I think tell us a story that we could see a continued bull market. We could see this become the longest bull market in history due to a lot of the similarities that we see from the eighties and nineties, whether that's technology, the interest rate cut that we saw recently, the fact that we were in the shortest term cyclical bull market that we've seen in the last 75 years.

There's a lot of reasons to be optimistic over the next couple of years, but there isn't a crystal ball. Now if we look back at the Dow versus the S and P 500, we're going to see periods of time there where we're about three years away from this being the longest bull market in the Dow. You know, we saw 17 years then and we've seen 17 years, 11 years, five years in the roaring twenties, nine years, you know, and so we, this does make it a very long bull market and there's no question.

There's also a reason to question the valuations that we see today. If we look at Schiller's priced earnings, 10 PE 10 ratio, which is, you know, one hand, a Nobel prize for four predictions of returns in the stock market. This does appear to be one of the most expensive markets in history, you know, but we hit this valuation metric about two to three years prior to the end of the bull market in the nineties.

So there's another data point you go, well, yep, it's really expensive, but it could still roll for another two or three years. But you have to emphasize what you said is after every one of these major bear bull markets, whether you've seen that in the Dow or the S and P 500, the period of time you've seen after a bull market, especially one of this length, you see bear markets that have lasted 18 years, 25 years, 17 years, 11 years most recently. And that's, that's the point, right? Like in recent bear markets that we've had, they haven't been quite that dramatic, right? We've seen, we saw the COVID, we saw 2022, these are just little baby bears.

They didn't rip your face off quite like we saw back in, in 2000, 2001, two. I mean, we saw two 50% pullbacks in the, in the last decade. And, and what are we going to do if we get our face ripped off again? Or is your financial plan going to be able to withstand a big old grizzly bear? And you might be saying, well, you know, I made money during the, you know, the, the period of time that people often refer to as a lost decade, you know, at 11 years, I did pretty well during that period of time.

Why did you do well during that period of time? Because you were working and you were contending to add money to those accounts. So that's why I say to young people, I mean, if you have yourself, you know, a good 10 to 20 years before you need the money, don't start building up cash. Don't start setting money outside of the market.

You know, I'm not getting any more conservative today. I'm going to continue to add money to my 401k. I'm going to continue to invest in this market because no matter what happens next, I'm going to keep putting money in.

And right now, if the market's too expensive, I'm buying fewer shares. I'm buying less of the market. If the market sees a major pullback, look, I'm going to continue to buy at the same rate.

So I'm going to buy more of the market. So I don't have to worry about it. However, if you find yourself within five, 10 years of retirement or in retirement, it is a completely different story.

And a lot of retirees today, you know, if you retired in the last five, 10 years, right? You've never experienced a true bear market. You've never experienced a secular bear market. Go back and talk to a retiree that retired in 2000, a retiree that retired in 2007.

You know, they're going to tell a different story and say, we should exercise caution. And there is reason to exercise caution a day when we're talking about the, this bull market potentially extending. We're not talking about it extending for another decade.

We're talking about this bull market extending for potentially a couple more years. Well, that gives you reason to pause and start to evaluate how much risk you're taking and the financial strategy you put in place to ensure you're going to be okay. No matter what happens next, do we have another bull market for the next couple of years, or do we enter the bear market earlier than that? You have to be prepared for both.

If you're ready to stress test your retirement strategy to ensure that you'll be prepared, no matter what happens next, call the number on your screen to visit with one of our fiduciary financial planners virtually or in person, no matter where you find yourself in the country and we'll provide you with a complimentary retirement stress test and personal financial review.