Will the Stock Market Crash in May 2018?

With the recent volatility in the stock market, investors might be wondering, "Will the stock market crash in May?"

While no one can predict the precise time of the next stock market crash, there are some bearish signs investors need to be aware of.

The CBOE Volatility Index (VIX) is up 65% since the start of the year, while the Dow is down 4% on the year.

That's a stark contrast to the stock market's white-hot 2017. The Dow gained 25% last year as the bull market lumbered into its eighth year.

You Must Act Now: America is headed for an economic disaster bigger than anything since the Great Depression. If you lost out when the markets crashed in 2008, then you are going to want to see this special presentation...

But there are two catalysts that could push stocks lower. And with valuations soaring to near-record highs, a correction could be devastating.

While we aren't predicting a market crash, we want Money Morning readers to be fully informed.

Here's what we're keeping an eye on - and what you can do to protect your portfolio...

2 Catalysts for a Stock Market Crash in May

The U.S. Federal Reserve is in hawkish mode. The Fed has hiked rates six times since December 2015 and has signaled it could hike rates at least three times in 2018.

After raising interest rates in March, the Fed only needs to raise rates two more times to reach that mark.

And even though the Fed declined to raise rates during the May FOMC meeting, market watchers and investors are keenly aware that the Fed is planning to tighten monetary policy. In fact, today's (May 4) announcement of 4.1% unemployment rate gives the Fed even more justification to raise rates.

dow jones news today

But higher rates alone won't cause a stock market crash.

It's that low interest rates helped boost stocks to some of their highest valuations ever. And if the Fed continues to tighten monetary policy just as the eight-year-long bull market stalls, a correction, or even worse, could follow.

You see, the Fed cut rates from over 5% in 2007 to 0.25% in 2008, the lowest interest rate ever. This was designed to boost the economy by making it easy to borrow money. But public companies used the money to finance share buybacks.

Between 2008 and 2016, public companies borrowed $2.1 trillion thanks to cheap money, then bought back $1.9 trillion of their own shares.

That's helped send stocks surging since the recovery began in March 2008. The Dow is up 230% since then. And so are valuations.

The Shiller P/E ratio - a measure of stock valuations - has ballooned to 31.1. That's 83% above its historical average. The ratio has only gone higher twice: before the 1929 stock market crash, and before the 2000 tech bubble popped.

Now, that doesn't mean a stock market crash is coming, but it is a sign that investors can't take the bull market for granted.

However, you can prepare without sacrificing profit potential.

Check out two stocks with double-digit potential in 2018 with a history of rising in bear markets...

How to Protect Your Portfolio from a Market Crash in 2018

[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 $202.52 a share and pays a 1.71% 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 $224.82 and pays a 1.33% dividend yield.

But owning resilient stocks isn't the only way to protect your money...

There Aren't Any "Safe Spaces" to Protect You from the Next Financial Disaster

America is headed for an economic disaster bigger than anything since the Great Depression.

If you lost out when the markets crashed in 2008, then you are going to want to see this special presentation.

Because if you don't act soon, the effects on your financial future could be more severe than anything you have ever experienced.

Don't wait - You can see all the details right here.

Follow Money Morning on FacebookTwitter, and LinkedIn.