2022 Stock Market Crash | When it Ends and When I’m Buying

hey bowtie Nation Joseph hog here thank you for joining us for another one of these Monday Market updates uh coming to you at 9 00 a.m eastern time every Monday morning I usually try to do it live every other week just kind of connect with you out in the bow tie Nation there answer some of your questions all you out there in the nation know this is my favorite part of the week really just uh getting back to you and uh getting getting your questions answered uh got a big week this week obviously the bear Market rally has been confirmed we are down uh almost almost two those June lows and there's no sign of stopping the market so I wanted to share kind of my strategy what I'm looking for why I think the market will stop can continue to fall why I think stocks will continue to fall into set you know 2022 stock market crash and two specific points that I'm watching for that are going to indicate that uh we can be we can at least uh look forward to our next bull market right two points that I think you can watch for to know when to buy stocks as well as my specific strategy that I'm using uh great to see everyone there in the chat um you see Ambrose there from New York Matthew uh deep deep salmon good to see you there uh let me know where you're coming true coming to from India the bow tie Nation there uh we're actually in our new home in Tampa which is greeting us after about two weeks of living here with a hurricane coming up so hurricane Ian uh heading for Florida in the next couple of days you know uh all like all I can say about that is um if you're if you're down here if you're down here on the Gulf Coast just be safe stay inside and ride this thing out we're uh we're keeping up to up to date with the news too to see exactly where it's going to strike but uh you know wherever it hits uh just just my prayers go out for you and uh stay inside and stay safe like I said but I do want to get to uh this week's this week's topic because again with a weaker economy on the horizon something we've been talking about over the last couple of months there's just no sign that this crash is over uh and unless you know what to look for really right so I'm going to revisit my strategy that we've talked about uh before on the channel why the market is going to be likely to fall further and uh you know what to watch for to know when you can when you can start buying stocks uh before we before we do that I do want to uh I do want to show you you know evidently uh Reddit is has been a big thing over the last couple years I didn't know right um you know it's all the all the subreddits uh with stock ideas and stock suggestions and the meme stocks you know I didn't want to I didn't want another social media platform I didn't understand it but it is just something that that you can't ignore anymore right I was getting tired of Facebook limiting our posts I was getting tired of YouTube only showing you uh out there in the community out there in the bow tie Nation the videos they want you to see so you can never really have a true free and and uh engaged Community without that kind of sharing and without that kind of conversation so we started the Let's Talk Money Channel Reddit subreddit uh just last week already over 500 members in there and some great conversations so I'm Gonna Leave a link in the in the description below as well as in the chat box there go ahead and click through and uh you know join the conversation there over in Reddit uh I gotta tell you I'm surprised I just started using it and it is a lot of fun for the kind of conversations you can get going uh and um and you see all of them right you don't have to wait till Facebook shows you what conversations they want you to it to see so go ahead and click on over there with the the link that I'll leave in the uh in the description or in the chat or just go to the subreddit Let's Talk Money Channel but I do want to get today's today's topic because obviously it's something that everybody's been asking about you know what is my strategy for buying stocks when is the stock crash gonna be over we are now down 23 percent from the pullback in January from the January peak of 4 800. uh it does look like we're going to fall further today's Futures are down and there's really no reason that the stocks won't fall further there are uh there there could be some signs of of relief rally this week uh just on technical oversold conditions and I'll get to that later in our weekly update but uh but there's really two key points that I'm watching for and reasons why the stock market will continue to fall further and we're going to talk about those so I I first want to outline why I think stocks are going to keep on falling the two point the two specific signals that I'm watching for and uh and then that strategy for when and how to invest in stocks you know by its own admission the uh so the FED just raised rates again for the third consecutive time at point seven five percent the third straight meeting raising rates by uh three quarters of a percent which is the highest it's raised rate since 1994. right so uh three consecutive uh meetings in a row it's raised rates by the most in you know 30 years it's already raised rates to a 3.25 percent uh range up to up to 3.253 to three three and a quarter uh the market expects it to go another one and a half percent okay so imagine that um you know over the past uh over the past three meetings they've raised rates by two and a quarter percent the market expects them to go up another one and a half percent and just think of what that does to the economy what that does to uh to the stocks and stock markets okay by its own admission the FED is now slowly increasing it's uh its rate Outlook uh the FED now expects to raise rates by at least another one percent over the next year uh different fed members they've chair Powell has slowly started to talk about uh a recession and the economic pain that it's going to cause just to uh just to bring inflation down uh and the jobs he wants to uh he wants to destroy right and frankly there is no other way that we bring inflation down than to weaken the jobs Market okay the uh the FED actually says that it wants to bring the jobs Market or expects to bring the jobs Market unemployment rate up to 4.4 percent that's from 3.7 percent right now okay so just that uh just that point seven percent of extra unemployment on the jobs Market is going to be 1.2 million people unemployed okay that's what the FED wants to do and that's what it has to do uh honestly again uh until you get a weaker jobs market and tell you we get weaker consumer spending and consumer sentiment which drives this economy 70 of the economy is from consumer spending from consumers getting out there and spending those uh those employment checks right until you get a weaker jobs market and you don't have that then you're going to have higher inflation the FED knows that and the FED knows what it has to do and what it's going to do so again that's at least one in 1.2 one and a half million jobs that are going to be out over the next year because of these fed increase rate increases uh another big point that I'm watching is and this is one of the big ones this is one of the the things that I think is going to send stocks lower and is the things one of the signals you need to watch for to know okay you know the the market is working through all the worst worst news okay once we get all the worst news baked into stocks then there's nothing left but but to go upwards and uh you know hit that next bull market but this is one of the signals the utility bills this winter just here in the United States utility bills or utility costs so the cost of natural gas the cost that utility companies have to pay is up to 30 it's averaging 30 percent higher than last year okay and now of course not all utility companies are going to be able to pass on all those costs to Consumers this winter but a large portion of them will all of them will to some extent uh increase uh utility bills so we're looking at utility bills this winter across the United States they're going to be up to you know 20 25 and 30 percent higher than last year what do you think that is going to do to Consumer sentiment what do you think that is going to do to consumer spending and again that's three quarters that's 70 percent of the of the economy right there in consumer spending so I'm waiting for the the the market the the economy everyone to start talking about this how high utility bills are going to be or are during the winter months uh and how that is going to destroy the economy and Destroy consumers because consumers aren't going to be there to support the economy like they have been we've already been seeing a lot of negative news about the economy uh the economy just went through two quarters of declining GDP but the consumer has been strong the households have saved up a lot of money through the pandemic still have a lot of savings that savings is running out right now and is going to be destroyed during the winter when those utility bills hit so that's what I'm watching for okay as we get into November December those utility bills start creeping up and people realize oh I don't have any more money I can't pay my utility bills how am I going to go out and spend on the discretionary stuff and other things so people are going to start pulling back on their spending businesses are going to start realizing that and are going to start realizing okay this recession is here it's coming and it's going to be a lot worse than we thought that's the First Signal and that's the it's really going to be the first shock to stocks okay when the market realizes that and starts baking that into stocks the stocks are going to have to fall a lot further and we're going to get into about how much that's going to fall and uh and where I'm buying at that point another thing uh you know it's just as bad over in Europe we talked about this last week with the European energy crisis those utility bills are even higher so I'm a utility costs to to utility companies over there in Europe have doubled and tripled over the past year uh and they are starting to nationalize uh energy companies right uh Germany just had to nationalize its largest Energy company Juniper uh and uh so take that over save it you know give it that a a bailout uh to to get keep it from going under um Russia is cutting off Natural Gas and other you know pipelines and things like that and uh in Europe is is in for it is a historic crisis in energy like we've never seen so that's really going to be the first signal and the first the first shock to stocks is when the market realizes consumers globally are not going to be there to save the economy one another one I'm looking at is is really just the fact that the market and investors seem to uh to seem to be hoping uh ridiculously hoping to uh that there is no recession right that the FED can somehow engineer US off Landing even though the fed's track record has been nil to zero uh for for being able to engineer a soft Landing you know basically raising rates to bring down inflation but not cause a a recession that's not going to happen folks we've already had two quarters of negative GDP growth and we are not even into the worst of the economic effects of these interest rates so you know the only way for inflation to come down again is for for that higher employment one and a half million jobs to be lost uh and the market needs to realize that okay so until you until you as you keep seeing uh news articles analysis where that talk about hope for a mild recession or no recession at all then the worst won't be baked into stocks you know until we start until investor is the market until all these this analysis starts reflecting the idea that yes there is going to be a recession there is no doubt about that the only question is how bad it will get okay that's the point where the worst is going to be baked into stocks okay that's another shock that's going to have to happen it's going to bring stock stocks down okay so those are really the two signals that I'm watching for to kind of get a feel for how much of the worst possible scenario has been baked into stocks now all you out there in the nation know I like to use kind of a three level approach to investing um and that's basically just picking levels in the S P 500 and we're going to talk through this uh where I want to start deploying my cache right right now I have about 30 of my portfolio in cash uh some other safe Investments like I bonds uh guaranteed you know money market and savings bonds things like that things that I can liquidate things that will not uh will not lose value as rates increase like bonds as well as some short-term bonds that don't lose quite as much of their value you know when interest rates go up as well all right and if you're looking for things like that you know we've talked about I bonds before on the channel we've talked about uh you know the bsv the Vanguard short-term bond fund that's the ticker bsv there it does lose it's uh it does lose some value as rates go up because there are corporate bonds but not quite as much right they don't lose uh nearly as much as some of those longer term bonds you've also got the TLT which is the treasury bonds uh as well as uh you know some of those other government bond funds that I would look at for that that cash side of your portfolio but again you know there's nothing wrong with holding cash uh it is going to give you that ammunition to deploy and to use at these lower prices that we're going to see here over the next few months so what I want to do is again I want to pick three levels in the S P 500 uh where I want to start deploying that cache and one this is just going to give you the best of both worlds when you're when you're investing as well as holding some money for for to holding some money back for just in case stocks do go down further so my three levels here are really thirty five hundred thirty two hundred thirty one fifty somewhere around there and three thousand okay and what I'm watching for is you know win the stock market when the S P 500 levels get to that point I'll deploy maybe a third of my cash right so say I have a hundred thousand dollars in cash in my portfolio uh when the stock market Falls to 3 500 I'm gonna use about thirty thousand thirty three thousand of that to invest in my stocks my favorite stocks the stocks already in my portfolio you know Peter Lynch said uh a great quote by Peter Lynch said Sometimes the best stocks to buy are the ones already in your portfolio I think we we spend so much time looking for new stocks to buy and and people get portfolios of 30 and 50 stocks that you don't realize you know what uh some of the best ones out there are the ones you already believe in because you already own them so just look in your portfolio the best stocks the ones you want to hold for 10 and 15 years uh give them time for that at that market rally and that next bull market to occur those are the ones you want to double down on and and keep investing it so yeah 3 500 I'm looking for that's going to be about 27 from the January Peak and why I picked that is because it's a new Mark a new low for the year right um 4 800 was the peak in January we hit 36 36 there in June at the June low uh and then you know as the market keeps falling then I expect it'll hit 3 500 for 27 down from the uh from the from the peak in January and that's that's about the average for a bear Market it's 27 29 uh over the last 50 years uh bear markets have averaged right around there right around 27 to 20 to 30 percent uh down on average so you know at that point I do I don't think the stocks are done falling I do think they can continue to fall especially if we haven't hit those two signals that I talked about those utility bills and the the recession okay but at that point I do want to start putting some cash back to work okay I don't want to I don't want to wait until the absolute bottom of the stock market because you'll never find that okay you'll never time the market perfectly and you'll never you'll never find that that exact bottom okay so the worst thing you can do is just keep waiting keep waiting and let stocks go all the way back up and uh and never never be fully invested or never be you know invested to the point you want to so at that point 3 500 I'll deploy another a third of my cash and really put that money to work start it working for me but I still have quite a bit of cash left over to uh you know to take advantage of those lower prices if they come at that point if stocks do hit the 3200 to 3150 Mark that's on the S P 500 again that's about 33 from the peak okay so you know I've saved myself another maybe six seven percent uh downside protection on the rest of my cash I'm gonna deploy another third of my cash so that would be you know in that example with 100 000 cash that would be another thirty thousand dollars of that I would then invest in my favorite stocks in the in the stocks that I really like and again you know that's uh that's right around maybe 31.50 that'd be about 35 percent down from January's Peak that would be right at where the market stopped falling in the 2020 uh pandemic crash right uh in March February March of 2020 during the pandemic the stock market crashed 35 of course that was in a much shorter time frame that was only 23 days that the market uh crashed 35 so very quickly I don't actually consider that a stock market crash because that was obvious extenuating circumstances with the pandemic that kind of thing when I measure crashes I usually measure you know the big ones like 2008 2000 uh things like that but so 35 was the 2020 crash and uh and that's kind of what I'm aiming for for that second level down okay so that'd be about 31.50 on the S P 500 again I'll start deploying that other third of my cash finally if the S P 500 Falls to 3 000 okay that would be 37 down from the peak uh I would invest the rest of my cash so at that point at 3 000 I would be you know I would be fully invested uh with with my cash into those favorite stocks and holding on for for the long term you know again I didn't necessarily just pull those numbers out of my ass uh the 3500 again is right around that that bear Market average the stock market crash average the 3150 is right around the 35 percent the stocks fell in 2020 and then the 3 000 the 3000 more importantly is uh is about 15 times my you know is about 15 times what I'm expecting for uh you know for price to earnings okay so if we look here I want to show you some some charts here that I'm using to kind of forecast where stocks are going what that that final level that I want to be invested at okay this is factset okay uh all you out there in the nation know one of my favorite resources for stock market information so facts that surveys uh analysts it it watches the earnings coming out and it really gives you some great free information you just go to Google type in fact set earnings Insight that's FAS f-a-c-t-s-e-t earnings insight and you're gonna get a free weekly uh weekly uh resource there now what you're looking at here is the S P 500 calendar year in bottom-up bottom up earnings per share actuals and estimates right so that here in the dark blue are the earnings per share of all the companies in the S P 500 right so if you took all the S P 500 companies the large 500 companies in the United States added up their earnings each year uh this is what you'd get in 2021 the all those companies those 500 companies had 208 dollars 208.49 in earnings okay this year 2022 those companies are expected by analysts to report 226 dollars in earnings now okay so I'm taking that as pretty much a given uh we are we're almost into the third quarter earnings reports uh companies generally always beat earnings expectations uh so this is this is pretty well 226 dollars is probably pretty darn close to what companies are going to report as far as earnings in this year now that's unless unless the fourth quarter so unless the last quarter of the year so this October November December period unless that just completely falls apart everybody just uh comes to a standstill and doesn't spend we will be right around that 226 dollars uh per share now what my my problem with this and why I think this is just ridiculous here is if you look at next year's earnings expectations right here uh for 2023 analysts on Wall Street still expect the companies in the S P 500 the stock market to report 243 dollars uh in earnings okay which would be should be I think it's about five percent uh you know I want to save about five percent above this year's estimate so 243 divided by 226 that'd be about seven analysts expect earnings for S P 500 companies to grow by seven and a half percent and there's just no way in hell that it does that with a recession okay they're they're delusional okay if you look at uh I got this data from Deloitte right this shows the um the earnings earnings per share uh the effects you know through in for inflation or through recessions and that kind of thing the change and year over year it's change in earnings so you got this line here and this is uh the year over year change in earnings and anytime we have a recession these shaded areas you see earnings just drops off a cliff right and that's obvious okay if we have a recession people aren't spending uh business activity slows down and you get a drop in earnings that drop in earnings is generally between 10 to 20 percent on average you know that's data back more almost 100 years back to 1948 um you know in those recessions we've had a 10 to 20 drop in corporate earnings so I don't know how you expect and again of course this is just because analysts and the market is holding out hope that we do not get a recession that the FED can engineer some kind of soft Landing miraculously but there's no way in hell we do that we will have a recession folks especially uh you know as I talked about as those utility bills start hitting consumer spending we are going to have a recession as the FED raises rates by at least another one and a half percent to slow down inflation there is going to be a recession and we are not going to get to this 243 dollars in corporate earnings okay it's 226 this year if we do you know it's just some kind of back of the envelope math and say it's even a very light light recession okay if corporate earnings only go down 10 percent so we'd times this by 0.9 that gives us 203 dollars for per share for corporate earnings okay so my expectation is that we get some kind of a recession it doesn't even have to be a big one just a mild recession is going to bring corporate earnings of the S P 500 down to 203 down to 200 per share okay and now what I'm saying here is if we look at any kind of a price to earnings chart okay historical price earnings again this is a chart by factset it's the uh p e ratio over the last 10 years you can see in the side of this darker this darker blue lash Dash that is the 10-year average 10-year average for p e ratios for stocks in the S P 500 in the market has been just over 20 okay so 20 times has been the average uh price to earnings ratio that's the price of the index the price of the S P 500 divided by the earnings of all those companies okay now what I'm saying is if you look down here 15 and if you go down you go back even further you go back 20 30 40 years and that 15 level 15 times price to earnings has always been a really good level to buy stocks okay if you can get stocks uh at you know when the market is down to 15 times price to earnings uh then then you're you're doing pretty well you're going to have good gains good returns in the years to come and you look here I mean if you had bought here in uh this is 2012 last time uh stocks were really at that 15 times price to earn his level I mean you had all these returns to speak of uh you know in the years in the years to come so what I'm looking for uh what I'm saying is you know if you do if you do invest at that that 3000 level right that 3000 level that final level that I'm watching for in the S P 500 if I invest the rest of my cash and I'm fully invested at 3 000 when uh when stocks are right around that uh you know that 15 times price to earnings ratio I'm fine with that even if stocks fall further they could stop fall further that's only 37 down from the peak uh and you know we know the last two real recessions the last two real stock market crashes in 2008 2000 have been down 50 percent right so we'd have quite a bit more pain from 3000 down lower to 50 off on the stock market but I would be okay with that right because I would know that I got in you know at the right time at 3 000 you know even a little bit higher on some of these other two levels and uh you know my money is gonna eventually work for me and and provide those very good returns as the next bull market heads Heads higher so again I'm not saying that you need to time the market perfectly I'm not saying that you want to even try to time that that bottom of the bull market the bear market and find that market low you don't want to do that okay because nobody knows where it's going to be nobody knows when stocks are going to head higher so what you want to do instead is you want to make sure that you're holding back cash for different points in the in the market as the market moves lower and then at different points in the market you want to deploy that cash you want to get it started working for you okay so again my levels for that are 3 500 3150 and about 3 000 okay that's where I'm gonna start to start making that money work for me that way I know that I have money working for me but I also have money set aside if the stock market Falls even further one of the best things about that is it keeps you from just stressing out about the market okay I see too many investors heading to uh you know heading to their stock screens heading to Yahoo finance every single day worrying should I invest now is this it uh when when is that next bull market or and when do I start investing and of course they end up you know buying the dip constantly they end up pushing all their money all in too early and stocks just keep on falling right so that is lost opportunity they don't have any money left over to uh to invest when stocks fall further so that's really why I want you to use this strategy of looking for specific points in the stock market for when to invest again you know those two specific triggers besides those points are the utility bills you know when when the market realizes consumers aren't going to be there to save the economy because of those High utility bills this winter and win the market finally realizes a recession is unavoidable we are going to have a recession and they start bringing down these these uh these estimates for corporate earnings again I'm estimating I'm forecasting that corporate earnings are going to be closer to 200 next year rather than the 243 That Wall Street still expects and that is going to affect you know stock prices and stock valuations

Channel: Let's Talk Money! with Joseph Hogue, CFA

Views: 46,533

Keywords: 2022 stock market crash, stock crash, stock market crash, market crash, when to buy stocks, why are stocks falling, stock market news, stock market this week, stock market today

Id: qQccaB834nc

Length: 25min 56sec (1556 seconds)

Published: Mon Sep 26 2022