On Wednesday (March 1), the Dow sailed past the 21,000 mark on its way to another all-time high. But the Dow's post-election run - up 15% - has investors wondering when the markets will fall.
That's why we're giving you our next stock market crash prediction.
No one can precisely time the next stock market crash. But we can look at past stock market crashes to find signs of upcoming market crashes.
And we are going to do just that.
But prepared investors should also have a stock market crash plan. In fact, a plan can help you profit while other investors are panicking. Because Money Morning is here to help you make money, we're going to show you how to prepare for a stock market crash.
Before we show you our plan, here's how we made our 2017 stock market crash prediction...
Stock Market Bubbles Lead to Crashes
We looked back to two of the biggest stock market crashes of the 20th century to see what caused them. What we found was speculative investing inflated stock values to unsustainable levels.
During the 1920s, the stock market soared. The Dow gained 335% between 1922 and the historic stock market crash of 1929.
But the massive growth wasn't fueled by a growing economy or more profitable corporations. The growth was fueled by risky speculation. Traders were convinced the market would never fall, so they took more risks by buying stocks.
Average investors borrowed over $120 billion (in today's figures) to buy stocks. This level of risk is inherently dangerous, but borrowers thought they were simply losing money by not having it invested in stocks.
But stocks were being driven up to new heights by these risky purchases. And when the market dipped, investors panicked.
Just Released: Be sure to check out our latest stock market crash protection guide for even more strategies you can use to protect your money - and even profit - during a market crash. Click here...
On Black Tuesday - Oct. 29, 1929 - the Dow fell 12% as traders moved 16 million shares of stock. Between September 1929 and June 1932, the Dow lost 86% of its value.
More recently, another round of speculative investing led to the stock market crash of 2008.
This time, speculation in the housing market led to a stock market collapse.
Between 1996 and 2006, the average price of a home in the United States doubled, and again investors and bankers believed the market could only go up. This belief led to unsustainable risk-taking.
Buyers bought more expensive houses than they could afford and lenders lowered their standards so nearly anyone could qualify for a mortgage. Wall Street banks bought mortgages, even the most risky mortgages, and traded them as securities.
But home prices would fall.
Between 2007 and 2009, the average home price fell 30%. And the stock market bubble popped.
The Dow had its biggest one-day drop in value ever on Sept. 29, 2008, when it lost 7%.
Now we are seeing some of the same signs of a stock market bubble today. These are the signs we are seeing that could make stock market crash predictions a reality...
Will the Next Stock Market Crash Prediction Come True?
The Dow has been shattering all-time highs, but low interest rates have overinflated the value of the market. We can't say with certainty an overvalued market will lead to a stock market crash, but these signs mean investors need to be prepared.
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In 2008, the U.S. Federal Reserve cut interest rates to 0.25%, down from over 5% a year prior. The idea was by cutting interest rates, corporations would be more willing to borrow and spend money. This would stimulate the economy.
But instead of using the cheap borrowing costs to finance new developments or expansion, corporations borrowed money to buy back shares of their own stock.
In fact, since 2008 public corporations have borrowed $1.9 trillion as they've purchased over $2 trillion of their own stock shares.
At the same time, investors who might have bought bonds turned to stocks in search of better returns.
These effects of low interest rates meant money poured into the stock market, driving prices higher. But this money wouldn't have gone into stocks if interest rates were higher.
And today (March 3) Fed Chair Janet Yellen said a March rate hike is likely. Rising interest rates might lead to a market correction. No one can know if that will cause a 2017 stock market crash or not.
But savvy investors will be prepared either way, and we're here to help. We've put together a three-point plan to help protect your money from a stock market crash and profit, too...
Our 2017 Stock Market Crash Protection Plan
Our plan has three parts.
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First, Money Morning Global Credit Strategist Michael Lewitt recommends buying gold. In fact, he thinks gold should make up 10% to 20% of your overall portfolio.
That's because gold is a "safe haven" investment. It keeps its value even when markets become volatile.
And instead of buying physical bars of gold, we recommend an ETF like the SPDR Gold Trust (NYSE Arca: GLD). GLD mirrors the price of gold, so you get all the benefits of owning physical gold with the ease of buying and selling on an exchange just like any other stock.
GLD trades at $116.90 a share and is up 6.62% year to date (YTD).
Second, buy stock in companies in the "Unstoppable Trends."
Money Morning Chief Investment Strategist Keith Fitz-Gerald says the "Unstoppable Trends" are industries that will always be in demand, no matter what the market is doing. These industries are energy, health, technology, scarcity, demographics, and war.
Look at Microsoft Corp. (Nasdaq: MSFT), for instance. Microsoft is a leader in the "Unstoppable Trend" of technology. The world is tied to technology, which means no matter what happens to the market, people and businesses will still need computers and the Internet. And Microsoft makes sure this happens.
MSFT shares are trading at $64.09 and are up 22.43% over the last year.
Becton Dickinson and Co. (NYSE: BDX) is another leader in an "Unstoppable Trend." As populations age, they need more healthcare, especially for chronic diseases. And BDX is a leading supplier of one-time use medical supplies required in many long-term healthcare facilities.
Shares of BDX trade at $184.71 and are up 12% YTD.
Raytheon Co. (NYSE: RTN) is top performer in the "Unstoppable Trend" of war and defense. Unfortunately, war is an ever-present reality around the globe. But RTN has won massive traditional and cyber defense contracts, both in the United States and from nations around the world.
No matter what happens to the markets, the United States will need security, and RTN will be there to help.
RTN trades at $153.74 and is up 23% over the last year.
Third, profit from a crash by shorting an index.
Money Morning Capital Wave Strategist Shah Gilani, recommends ProShares Short S&P 500 (NYSE Arca: SH). This ETF trades inversely to the S&P 500, so when the market goes down, SH goes up.
Buying SH is not a long-term plan. If you buy it before the market drops, you'll lose money. If you hold it during a decline and the market begins to advance again, you may also lose money. The best plan is to buy it close to when a stock market crash occurs.
Editor's Note: “Must-have” companies backed by Unstoppable Trends are a cornerstone of Keith’s wealth-building strategy. But there’s another type of investment he wants Money Morning Members to know about. It's one of his favorites, a kind of "desert island fund" he'd buy if he had to park his money in one place, "retire" from civilization for 20 years, and come back to a pile of money. Click here to learn more...