On Feb. 5, the Dow experienced its largest intraday drop in history, with a loss of over 1,600 points.
The early February downturn has investors concerned about what may be next, including questions about a possible stock market crash in March 2018.
Insert image, wrap text: https://www.shutterstock.com/image-photo/stock-market-arrow-graph-going-down-311358320?src=7yijtjZYlyBmvaQX4E1D7g-1-26
The brief downturn in early February passed the threshold of a stock market correction - a loss of 10% or more.
This would mark the fifth correction experienced during the second-longest bull market of all time over the past nine years. The last correction, in 2015, occurred when the Dow dropped 11% from July to September.
But as the record-breaking run of stocks continues despite five corrections, investors are wondering if the stock market will crash in March.
Urgent: Feds use obscure loophole to threaten retirees. If you have a 401(k), IRA, or any type of retirement account, this could cause you to miss out on $68,870 or more. Learn more...
While we aren't predicting a stock market crash in 2018, the correction that kicked off February underscores why it's so important for investors to have a plan.
Here are the stock market crash warning signs we're looking at, and what you can do to protect your money...
The Factors That Could Lead to a Stock Market Crash in March 2018
While we don't believe that a market crash in 2018 is likely, there are still reasons investors can't afford to be complacent during this stage of the market cycle.
First, we could soon be witnessing signs of a market crash thanks to the U.S. Federal Reserve.
You see, the Fed has had a lot to do with the length and strength of our current bull market.
When the 2008 financial crisis hit, the Fed embarked on a program to stimulate the American economy. One of the ways that it did this was by slashing interest rates to historically low levels. The rationale was that low borrowing costs would prompt businesses to invest more in growth, which would help the economy.
In 2008, the Fed cut rates to 0.25%, down from over 5% the prior year. This was the lowest interest rate in history.
And its plan worked...
Businesses borrowed a ton of cash. They just didn't use it the way that the Fed intended.
Between 2009 and 2016, publicly traded companies borrowed $1.9 trillion while spending $2.1 trillion to repurchase shares of their own stock.
This is one of the reasons that we have seen such massive gains in the stock market since 2009. When companies buy back shares, it boosts share prices. Since March 2009, the Dow is up 267.37%, including early February's downturn.
Second, there are signs that shares are overvalued, which could be an indication of a stock market bubble.
Now, there's no way to determine whether any asset is in a bubble until it pops, but we can compare current valuations to past bubbles.
The cyclically adjusted price-earnings (CAPE) ratio is currently 33.6, more than double its historical average of 16.8. And it's higher now than it was in 1929, before the stock market crashed. The only time the CAPE ratio has exceeded today's value was in 2000, at the height of the dot-com bubble.
Again, that doesn't mean we are in a bubble now, but it's a reason for investors to consider how to protect their money.
The conditions that drove these recent market gains are coming to an end. The Fed has increased interest rates five times since 2015, with its most recent increase in December 2017, and there are three more hikes planned for 2018 alone.
That could push rates above 2% for the first time since the financial crisis in 2008.
Stocks may continue to grow in spite of these challenges, particularly in light of the new tax law changes. However, it's always a good idea to be prepared, especially in the wake of the correction that we've just experienced.
And since we don't expect the market to crash but still want you to be prepared, we're showing you some of the most resilient, must-have stocks to own that will help keep your portfolio afloat while setting you up for long-term profits...
How to Prepare for a Possible 2018 Stock Market Crash
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
We're recommending two stocks that have a track record of performing even as the broader market declines. Both of these stocks brought positive returns during the tech crash in 2000, even as the overall markets fell more than 10%.
While there's no guarantee these stocks will be immune to the next correction or pullback, they are some of the best companies in the most in-demand industries.
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 these six Unstoppable Trends: medicine, technology, demographics, scarcity and 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 correct, these stocks are still going up.
That's why we're bringing you two 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 $222.21 a share and pays a 1.44% dividend yield.
Becton, Dickinson and Co. (NYSE: BDX) is an example of a play in the Unstoppable Trend of demographics.
BDX is a healthcare company specializing in one-time use medical products utilized in hospitals and long-term care facilities. That means as populations age, more people will need this type of medical care, and BDX will be in even higher demand. People will need healthcare whether the market falls or not.
But BDX is also an exceptionally well-managed company. It has a 10.54% profit margin and maintains a 1.58% dividend yield, 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. And that's good news for its shareholders during a stock market crash.
BDX trades at $227.25 and pays a 1.32% dividend yield.
Stocks like BDX are a great way to "ride" the Unstoppable Trend of demographics for higher gains. Money Morning Chief Investment Strategist Keith Fitz-Gerald has been researching even more aggressive income potential, too. He's found a special class of investments he calls "26(f) programs," which give investors the opportunity to tap into huge monthly income - $2,000... $5,000... or more - every month for the rest of their lives. Click here to learn how it works...
Follow Money Morning on Twitter @moneymorning, Facebook, and LinkedIn.