Investment expert Ted Bauman explained the possible scenarios of a stock market crash. While the current market trends may continue, they could also plummet. Bauman has both experience and success, making his investment advice valuable.
The U.S. stock markets are overloaded. Ted Bauman uses the CAPE ratio, which is the adjustment of price to earnings ratio made by Robert Shiller. A ten year period is used to compare stock prices and corporate earnings. The CAPE of S&P 500 is now at 32, which is close to the historical high.A drop of over 35 percent would occur if the market goes back to the normal 17 ratio. It would take over a year for this drop to happen and there could be two distinct effects. The first is investors would realize those future dividends would not yield a return on investment. Investors would instead search for profits which would. The appeal of returns on alternative assets would increase. Ted Bauman pointed out that Congress recently locked in one of the largest budget deficits in history.
Recognition of Yield Curve
Another scenario is the recognition of the U.S. Treasury having a yield curve. There is a small difference between short-term yields and long-term interest rates since they are staying low. According to Bauman, bond experts do not expect anything extraordinary to happen with the economy.
Crash and Bounce
A drop could be followed by a rise. The market and the economy had nothing wrong with them would make this possible. Rules-based selling would be followed by a quick drop, then partial recovery. In late 1987, a similar incident occurred, and Ted Bauman believes it is possible it could happen again.
Bauman’s Tips to Protect Investments
Bauman recommends that investors do not panic, and focus on both reducing risk and diversification of assets. Stocks with low volatility should be sought out, and the aid of an expert will help.Ted Bauman has a long history of success in the stock market and experience with the best investment strategies he shares with the average person.