The Stock Market Crash | What You Must Know

the stock market is doomed and I'm selling everything this is the type of comment I'm seeing all over social media right now I get it everything's taken a sudden dive from stocks to crypto and I know a lot of you who watch my channel have just started investing so for you guys this is understandably pretty worrying so today I thought it was important to address your concerns explain what's causing all this Mayhem and finally give you my thoughts on how you can best navigate this storm I'm prioritizing getting this video out quickly so don't expect the editing to be as slick as usual it's more important for you to hear the information so you can use it to your advantage this is one video you should definitely not skip so why is the stock market plummeting to put this into perspective the S& P 500 dropped 3% which was the biggest one day drop in nearly 2 years the Dow dropped 2. 6% while the NASDAQ slipped 3. 4% this sounds pretty alarming and from my research there are four main reasons for this so let's go through them one by one so that we can see if we're du another historic market crash similar to the 2008 financial crisis or just a little bump along the road reason

one of course is the fear of recession now if the economy went into a recession the stock market would most likely plummet this isn't always the case as there have been a few exceptions to this like in the 2020 recession as the S& P 500 returned 16. 3% for that year however that isn't the norm this makes sense as during a recession less money is being spent by people like you and me companies then start far in staff leading to more people being unemployed which causes people to spend even less this results in companies also earning less and most of the time stock price is being impacted this is one vicious cycle and I hope you can see why this would be a pretty bad situation to be in so if we aren't in a recession yet why is the stock market going down well as the stock market is known as a leading indicator Whenever there is a hint of a recession happening it reacts to that news pretty negatively so you're probably thinking what was that hint well several data report showed that the US had only added 114,000 jobs in July below expectations of about 150,000 and the unemployment had risen to 4. 3% this is higher than any month since October 2021 look these numbers are far from a disaster the unemployment rate is still relatively low and the underperformance in hiring isn't terrible however it has triggered something known as the sarm rule this is a pretty cool little rule that activates when the average unemployment rate over 3 months goes up by at least 0. 5% compared to its lowest point over the past year the reason people take this seriously is because it's accurately predicted every us recession since the second world war in response Goldman Sachs raised its odds of a recession occurring in the next year from 15 to 25% interestingly the woman who came up with the rule Claudia s doesn't think the law is going to be right this time and to put your mind at ease there have been other rules like this before such as the bond yield curves that have turned out to be unreliable recently one reason why it might be a false alarm is that this time around unemployment isn't Rising because people are losing their dream jobs instead it's because more people are entering the workforce however as I mentioned before unemployment Rising is only one factor in the vicious cycle of a recession the other important one is the amount of money everyday people are spending unfortunately it looks like spending is slowing down too now it may sound odd but a good way to gauge this is by checking how companies like McDonald's and Walmart are doing and both have recently said their customers are cutting back on spending another company to watch is Wayfair I actually buy a lot of my furniture from them I'm actually sitting on a Wayfair chair right now they recently mentioned that customers are being very cautious we're spending down nearly 25% from 3 years ago now this all sounds pretty worrying however when it comes to the S roll this time around I'm taking it with a pinch of salt even Goldman Sachs seem to agree although theyve increased their projection on the risk of recession they still think it's pretty unlikely there's also a lot of time for the big dogs at the Federal Reserve to swoop in and protect the economy which leads me nicely on to reason two is interest

rates right check out this graph the last few times that the FED cut interest rates from their Peak a recession followed closely behind and guess what's just happened you got it the US Federal Reserve hinted after its meeting at the end of July that interest rates would soon be cut now this graph also looks pretty concerning however it really doesn't show us the full picture to understand why this time is different from those past examples on the graph we need to look at why the Federal Reserve initially put interest rates up in 20202 the answer is simple the pandemic hit money printers were on full blast and Supply chains were suffering leading to high inflation levels the only way to bring prices back under control was to increase interest rates this was an unprecedented situation which I don't think we see again in our lifetimes certainly not in mine when they did this they set an inflation rate target to hit and said they would start cutting rates once they achieved it this strategy worked and inflation has come down pretty significantly from its peak of 99. 1% in 2022 but it still remains slightly above the fed's target rate of 2% so now if we go back to the graph all those past examples of the FED cutting interest rates was because they were trying to stop a recession from happening however this time it's because they are so close to hitting their inflation rate Target so the FED cut in interest rate should actually be seen as a positive move for investors because it helps boost the economy when rates are lower borrowing money becomes easier which means more money flows around this is the opposite of what happens during a recession so on the surface lots of these factors look worrying however when you dig a bit deeper it doesn't seem as bad as it looks so what else has cause the markets to drop so much that brings

me on to reason three tech stocks if you recently invested in any of the top tech companies then you would definitely hit harder than most especially the stocks in a group known as The Magnificent 7 which include Apple Amazon alphabet meta Microsoft Tesla and Nvidia now you might be thinking that's fine I don't invest in individual tech stocks however this also impacts the S& P 500 Index Fund investors as these top seven tech stocks actually make up about 31% of the S& P 500 meaning that when tech stocks get hit hard so does the entire Index Fund so I guess the obvious question is why are tech stocks suffering well recently these stocks have been soaring due to the promise of revolutionary AI technology I went to a conference last year in Texas and all they seem to be banging on about was all these different AI tools I should be using in my business I honestly got a bit sick of hearing about it over and over again it does seem like the AI craz has caused a bubble to form pushing some stock prices higher than they should have ever been don't get me wrong I do definitely see the value in AI it's not like the metaverse enough said about that I think I just think the value of our current AI capabilities have been widely overvalued and that investors are realizing this causing stock prices to fall to more reasonable levels I'm not alone with this thinking as Warren Buffett's bir here halfway slashed its stake in apple by almost 50% in the second quarter there also seems to be bad news followed by more bad news coming from the AI space I mean just recently the first preview of Apple intelligence failed to live up to the hype and nvidia's highly anticipated Blackwell chips will be delayed due to design flaws these chip delays will also impact companies like meta and Microsoft so everything is pretty interconnected look all in all I personally think investors got a little hyped about Ai and it became a bit of a buzzword it reminds me of when I was investing during the dotom bubble in the late 1990s just keep in mind that the stocks with the sharpest booms tend to fall the furest reason for is the

Japanese Yen now imagine you discover this really clever loophole you borrow money from someone with virtually no interest and invest it wisely meanwhile the currency's value drops significantly by the time you need to repay the loan the money you owe is worth much less than when you borrowed it but you're investment has grown so you end up repaying the devalued currency while profiting from your investment's growth now that would be a pretty cool life hack right well it's exactly what lots of Traders were doing with the Japanese Yen as it's been falling in value for years now it's a little more complicated than that but I'm not going to bore you with all the details it's a cool trick to make some easy money but why am I telling you this well everything changed when the bank of Japan decided to raise its main interest rate from nearly Zer so once again countries messing with the interest rates this small change caused the value of the Japanese yen to increase meaning that everyone using the loophole I just described were a little bit screwed as they had to sell their assets to cover their losses some experts believe that this could be contributing to the current decline in the stock market since all this went down the bank of Japan has eased up on the Tor of raising interest rates again this has made the Yen drop a bit which has gone some way to help calm the worries that are strong Yen could mess with the global stock market once again so as you can see there are lots of reasons behind the recent stock market decline now that you have all the facts

let me give you my thoughts on all of this and how you can adjust your investing strategy as always I'm not a financial advisor and none of this should be taken as Financial advice I'm just speaking from years of experience actually investing in seeing situations like this happen time and time again firstly throughout my investing Journey one phrase has always served me well buy when there's blood in the water in other words when the stock market is in Decline and people are Panic selling pushing prices down to irrational levels that's the time to step in and invest another phrase that teaches the same thing is buy the dip I know it should go without saying but if you want to do this then you need to make sure you have an emergency fund of at least 3 to 5 months of your living expenses this is more crucial than ever as the stock market is in a turbulent time and you don't want to be forced to sell your stocks at a loss only to find out later that if you'd held them then you'd actually have come out ahead look nobody can predict if the stock market is going to go up or continue downwards however I've always come out on top eventually by dollar cost averaging into a lowcost s& p500 Index Fund as it declines this essentially just means buying at regular intervals as the price drops this could be everyday or every week for all the people that have been watching my videos waiting for the perfect chance to jump in and start invest in if I was in your shoes I'd start my journey now yes you can't guarantee returns but at least you're entering at a lower price point if you're looking for a good investing platform to use then one of my favorites is trading 212 since I was planning to talk about our app anyway I reached out to see if they'd be interested in sponsoring this portion of the video they agreed and also offering a free fractional share worth up to £100 to anyone that uses the code Tilbury when they create an account plus you can get more free fractional shares by inviting your friends both of you will get a free fractional share as long as they fund their account secondly make sure you're Diversified this basically means spreading your money across different baskets of assets like stocks bonds and even crypto this is key to reducing investment risk and smoothing the ride through a crazy market so if one stock or industry is a bad day your other Investments may help offset those losses if you're an index fund investor like me then you'll be pretty Diversified anyway but bear in mind that the S& P 500 is topheavy with tech companies so it might be worth investing in a total us stock market fund to get even more diversification thirdly keep your eye on the long game it's easy to be positive when your portfolio is growing but when things start to go a bit South and your gains start disappearing it can be really tempting to sell everything I've been there but holding on has always worked out for me trying to guess the best times to buy and sell stocks is really tough and often leads to Mis chances according to Charles Schwab remember if you sell when the market is down you're making those losses permanent for example during the covid market crash in February 2020 if you had $1,000 in an ETF tracking the S& P 500 it would have lost over 30% of its value selling then would have locked in those losses but if you had held on you would have seen your investment bounce back by August just 7 months if you're waiting to jump back into the market when things look better you'll probably end up paying more and missing out on the rebound Gams so all in all remember the US economy Still Remains pretty strong even after the losses the S& P 500 Index is still up more than 9% since January Market Corrections or a drop of at least 10% from their highs occur on average every 1 and a half to 2 years so this isn't crazy or out of the ordinary I actually heard a pretty good quote the other day and it went something like this when the stock market goes up it takes the stairs and when it goes down it jumps out of the window and recently we've jumped out of a window from a pretty high floor because we've been going up a lot of stairs now I think that sums up our current situation perfectly if you want to know how I pick my stocks then you can watch this next video but don't click on it just yet make sure to subscribe if you want to grow your wealth okay I'll see you over there