The stock market is on a record-breaking bull run, with the Dow topping 22,000 for the first time this month. But while the stock market soars to new heights, investors are beginning to wonder if we are in a stock market bubble...
Since March 2009, the Dow is up over 200%, including a gain of more than 11% this year alone. The index just hit a string of nine consecutive days of record-high closes between July 26 and Aug. 7. The Nasdaq has raced to 18% gains in 2017 alone. And just last week (Aug. 8), the S&P 500 hit its all-time high of 2,480.9.
While we think stocks still have plenty of room to head higher and see no signs this run is anything like the tech bubble of the 1990s, investors can always prepare themselves for the unexpected.
One reason a stock market crash is so destructive is that few people see them coming, and then investors rush to exit stocks once it's too late.
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Ahead of the 1929 stock market crash, the Dow raced to a more than 300% gain starting in 1922. But investors mistakenly believed there would be no end to soaring stock prices. Famed Yale economist Irving Fisher said stocks had reached a "permanently high plateau" just a month before the 1929 crash.
And when the market fell, unprepared investors panicked, sending stocks plummeting. The Dow lost 86% of its value between 1929 and 1932.
That sort of loss is why we want our readers to be prepared no matter the situation. Even though we aren't in a stock market bubble, there are some signs stocks are trading higher than their fundamentals.
Here are the latest stock market crash warning signs, plus the best way to protect your money during a correction or crash...
Don't Wait for a Stock Market Bubble to Protect Your Money
Stocks have been soaring, which is usually a great sign for investors, but there are some warning signs too.
You see, after the market crash in 2008, the Fed slashed interest rates in an effort to kick-start the economy. Interest rates were cut from over 5% in 2007 to 0.25% in 2008.
This made borrowing money cheap in hopes that businesses would use the money to stay open and expand. Instead, publicly traded companies used the cheap money to repurchase shares of their own stock.
Between 2009 and 2016, public corporations borrowed more than $1.9 trillion, while $2.1 trillion was used to repurchase shares of their own stock.
That's part of the reason some metrics are showing stocks are overvalued.
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The Shiller P/E ratio - a commonly used measure of stock market value - is currently at 30.4, 81% above its historical average.
That means the current Shiller P/E ratio is higher than before the 2008 stock market crash, when it hit a high of 27.4. And only two other times in history has the Shiller P/E ratio gone higher than it is now: 1929 and 2000. Both years the markets crashed.
That certainly doesn't mean the stock market will crash, but it means investors have some reasons to be cautious. And protecting your money from a stock market crash doesn't mean giving up profits right now.
These two stocks are resilient during downturns (meaning they'll help protect your money) and offer double-digit profit potential right now...
The 2 Best Stocks to Own in a Stock Market Crash
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One of the best strategies for a volatile market is owning resilient stocks that will hold their value and even rally during a market correction.
Money Morning Chief Investment Strategist Keith Fitz-Gerald thinks investors should hold on to stocks in the "Unstoppable Trends." The trick to making huge profits is to find "must-have" companies that fall into what Fitz-Gerald calls the six "Unstoppable Trends": medicine, technology, demographics, scarcity/allocation, energy, and war, terrorism, and ugliness (also known as defense). The Unstoppable Trends are backed by trillions of dollars that Washington cannot derail, the Fed cannot meddle with, and Wall Street cannot hijack.
By owning well-run companies in these "Unstoppable Trends," you'll own resilient stocks that will charge out of any market downturn, leaving behind anyone who sold off stocks for other assets. And if the market doesn't crash, these stocks are still going up.
That's why we're bringing you three of our favorite stocks from the "Unstoppable Trends."
Raytheon Co. (NYSE: RTN) is our play for the trend of war, terrorism, and ugliness.
Raytheon is a leader in the defense industry with billions in contracts with the U.S. government and other countries across the world. That means if the market falls, Raytheon is going to continue to excel over the long term.
Raytheon has billion-dollar contracts with the U.S. government, but it also has a diverse customer base. International customers make up just under half of its business. That means even if a few countries cut defense spending during an economic downturn, RTN still has plenty of other customers to help it weather the storm.
But RTN's real allure as an Unstoppable Trend pick is the fact that war is a reality of the world. For instance, as tensions rise abroad, the United States is more likely to need more weapons and equipment. When the United States launched a missile strike on a Syrian airbase on April 7, Raytheon's stock jumped more than 2% since its missiles were used.
RTN currently trades at $173.6 a share and pays a 1.84% dividend yield. RTN is up 22% this year.
Microsoft Corp. (Nasdaq: MSFT) is a leading company in the Unstoppable Trend of technology.
The reality is that technology is here to stay; individuals and businesses across the world rely on it to function. Microsoft is a well-managed company and is a leader in the tech industry. That means MSFT will bounce back after a downturn.
Microsoft is also constantly innovating to stay on top of the tech world. Businesses and individual consumers are increasingly relying on cloud storage to manage their daily lives. And Microsoft's new Azure cloud platform is poised to fend off its rivals by integrating Microsoft software, something CEO Satya Nadella calls "Software as a Service." So even if the market dives, Microsoft services are still going to be in demand. Its Azure cloud computing service is now the second-largest cloud service in the world.
MSFT trades at $72.17 a share and pays a 2.2% dividend yield. MSFT is up 16% on the year.
This Stock Is Beating the Markets 16 to 1 - and It's Just Getting Started
Investing should be profitable. But the average market index fund may hit 8% a year... if it's lucky.
A 401(k) or IRA may do 7%... if you've got good management. The average hedge fund... well, they've been clobbered lately.
Meanwhile, one of Keith Fitz-Gerald's recent picks in his Money Map Report is beating the markets 16 to 1. It's up more than 22% since June 20.
It's just the latest winner from Keith, who regularly finds stocks set to rise on high-profit trends.
You can find out how to get that and all Keith's Money Map Report recommendations here.