A stock market crash in November 2017 might seem unlikely considering the Dow just had its best month ever. In fact, the Dow just climbed 4.6% in October.
But not all market indicators are positive right now, and smart investors always have a plan to protect their money in case disaster strikes.
Now, we aren't making a stock market crash prediction. We even think the market has room to run higher. But we want Money Morning readers to be completely informed, especially on the stock market crash warning signs the media aren't talking about.
Here's what could cause the next stock market crash and what you can do to protect your money...
What Could Cause a Stock Market Crash in November 2017
We're following two signs that could lead to a market correction, or even a crash, in November 2017, or even in 2018.
First, stocks are reaching historically high valuations.
Since March 2009, the DJIA has risen more than 220%. Those gains have come during the second-longest bull market in its history.
But stock prices have also shot up even as corporate earnings haven't. That means stocks are more expensive relative to each company's performance.
One of the best measures of stock market valuations is the Shiller P/E ratio, or CAPE ratio. Right now, it's at 31.8, 89.3% higher than its historical average.
And that's important.
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The only other times the Shiller P/E ratio has risen higher than it is today came in 1929 and 1999. The stock market crashed both times.
Now, that doesn't mean the stock market is going to crash again. But it means investors can't afford to be complacent, even if stock prices are soaring.
That's especially true now that the U.S. Federal Reserve is raising interest rates...
Second, low interest rates have helped boost stock prices, but that's ending soon.
During the Great Recession, the Fed acted to boost the economy using the tools at its disposal.
Between 2007 and 2008, the Fed slashed interest rates from above 5% all the way down to 0.25%, its lowest rate ever. Low interest rates made borrowing money cheap, and the Fed hoped cheap borrowing costs would stimulate economic growth.
While companies took advantage of the cheap borrowing costs, they used it to repurchase shares of their own stock. Between 2009 and 2016, publicly traded firms borrowed $1.9 trillion, while they spent $2.1 trillion repurchasing shares of their stock.
That's part of what's fueled the Dow's 220% gain since the recovery began in 2009.
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But the period of low rates is ending. Since December 2015, the Fed has raised rates four times.
This year, interest rates rose above 1% for the first time since 2008. And with the Fed planning one more rate hike in 2017, and potentially three more in 2018, interest rates could rise above 2% next year.
While the FOMC is meeting today (Nov. 1), it's unlikely that it will vote to raise rates during this meeting. Instead, the Fed is expected to raise rates in December.
Again, we aren't predicting higher rates will cause a stock market crash, but pulling liquidity out of the economy could slow the stock market's growth.
And with stocks at record-high valuations, a sell-off could spiral into something worse.
Fortunately, there is a simple, practical way to protect your money, and even profit, if the stock market crashes in November. The best part is, you don't even have to pull your money out of the stock market...
How to Protect Your Money with a Stock Market Crash Plan
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Money Morning Chief Investment Strategist Keith Fitz-Gerald recommends Raytheon Co. (NYSE: RTN) and Becton, Dickinson and Co. (NYSE: BDX), because these companies are well-run leaders in the "Unstoppable Trends."
The trick to making huge profits is to find "must-have" companies that fall into what Keith 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.
Not only are these stocks resilient during downturns because they are in demand, but they are both sporting double-digit price targets over the next year...
Raytheon Co. is a leader in the Unstoppable Trend of war, terrorism, and ugliness.
As one of the top five largest defense contractors, Raytheon has billions in contracts with the U.S. government and governments worldwide. International customers make up half of Raytheon's portfolio. And because defense is a global necessity whether the stock market is up or down, Raytheon will always be in demand.
For example, 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 $180.42 a share and pays a 1.77% dividend yield. RTN is up 27.1% this year, and Wall Street analysts are giving it one-year price targets as high as $212. That could bring owners a 17% gain.
Becton, Dickinson and Co. is our best play for the Unstoppable Trend of demographics.
BDX is a healthcare company specializing in single-usage medical products utilized in hospitals and long-term care facilities. But what makes this an Unstoppable Trend is an aging demographic in the United States. As the population gets older, more people will need medical care, especially long-term care.
And because people need healthcare no matter what the stock market is doing, BDX's demand will continue to grow.
BDX is also an exceptionally well-managed company, which means it's turning that demand into profits for its investors.
Becton Dickinson has a 10.54% profit margin, even after a $12.2 billion takeover of CareFusion two years ago. That means the company's capital management is sustainable and will easily survive a market downturn. But most importantly, BDX transfers those profits to shareholders through its 1.5% dividend yield and growing share price.
BDX trades at $209.36 and is up 26.46% on the year. Wall Street analysts set one-year price targets for BDX as high as $230, a 10% jump.
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...