The Next Crash [Are You Prepared?]
In two recent Wealth Watch article, I warned you about a potential market decline of 20% or more.
This the result of further escalating trade tensions between the U.S. and China.
Granted, I noted that assessment was a “worst case” scenario. However, this is a real and growing risk that investors face.
You need to be well aware of the dangers. If more tariffs go into effect relations with one of our largest trading partners could completely break down spelling the end of our long-running economic expansion.
If that “worst case” scenario does comes to pass, you’ll have to prepare your investment portfolio for the first bear market decline in nearly a decade.
Forewarned is forearmed and the good news is I’m going to show you exactly how to take the necessary steps to bear-proof your investments.
The first thing you need to know is where we are in the business cycle. That’s because different stocks and sectors post different performances depending on what phase of the cycle we’re in.
As you can see in the graph, their analysts places the U.S. market as entering the “late phase” of the business cycle.
As you can also see, other major countries are either be ahead or behind the U.S. For instance, Mexico and China are ahead of the U.S. in the business cycle. Their late-stage economic growth is already on the decline.
Most of Europe (Germany, France, Italy, Spain) by contrast are behind the U.S., still in the mid-cycle expansion phase. South Africa’s economy may have already bottomed and is beginning their early expansion phase.
But back to the U.S.
If we’re in a late-phase economic expansion now, the fallout from an escalating trade war with China could easily accelerate the cycle. This would tip our economy over the edge into recession.
For your investments, you’ll want to focus on stocks and sectors that typically perform well in a late-phase business climate.
In a late-expansion phase energy stocks tend to perform well along with other defensive sectors, such as health care and consumer staples (above left).
And sure enough, energy was the best performing sector during the second-quarter of this year. Plus health care and staples are among the top performing sectors over the last month, right as trade war fears intensified.
As the end of the business cycle draws closer, even more defensive stocks and sectors rise to the top (above right) in terms of performance. This includes consumer staples (No. 1 performer), health care and utilities.
Bottom line: To know when the end is near for our current expansion and bull market, simply keep an eye on the performance of defensive stocks and sectors like consumer staples, utilities and health care.
These are the blue-chips you want to own as the business cycle matures. It’s the best way to bear-market-proof your portfolio.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch