Is the Stock Market Overdue for a Big Plunge?

This week's market action has investors more nervous than ever about the prospects for a substantial drop in the near future. Yet if there's one thing about the stock market investors need to understand, it's that corrections are inevitable.

In the following video, Fool contributor Dan Caplinger takes a look back at the stock market to see whether we're overdue for a big plunge. As Dan notes, throughout the stock market's history, corrections tend to take place at fairly regular intervals, and while we haven't seen quite as many corrections as usual during the bull market of the past four years, what we have seen has been fairly consistent with historical trends. Dan closes with some guidance for investors to consider as they make plans for the future.

If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.


Read/Post Comments (19) | Recommend This Article (30)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 27, 2013, at 10:31 AM, VegasSmitty367 wrote:

    If these "corrections" could be predicted with any certainty, we'd all be billionaires!

  • Report this Comment On May 27, 2013, at 10:48 AM, banmate7 wrote:

    Warren Buffet has sold off his stocks? That's news to me.

  • Report this Comment On May 27, 2013, at 10:48 AM, prv8eye wrote:

    Isn't the market just being pumped up by the tons of money that the U.S. is printing to prop it up?

    The U.S. is still DEEP, DEEP, DEEP in debt and getting deeper every hour.

    Won't the "correction" be a plummet in the market?

    I'm NOT a conspiracy nut or a doomsdayer but it just seems the laws of financial physics are against us with the socialist path our government is taking.

  • Report this Comment On May 27, 2013, at 11:15 AM, ComicInvestor wrote:

    I dollar cost average into the market, so I'm not going to waste time and stress trying to time it. However, Fools should know I did just buy a couple of new individual stocks for my portfolio, which pretty much guarantees a correction very soon.

  • Report this Comment On May 27, 2013, at 11:51 AM, NashBar wrote:

    The problem we all face is that the current administration has been borrowing Trillions of dollars to prop up the economy, while unemployment/underemployment remains high. Borrow money now to make thing seem OK; blame the next administration when corrective action has to be taken.

  • Report this Comment On May 27, 2013, at 12:22 PM, luckyagain wrote:

    The stock market goes up and the stock market goes down. It has been this way since it started a couple of hundred years ago and continues to the present day. People complain about the Fed buying to allow money to flow into the economy. Just read a few comments complaining about that the Fed may stop buying. Hopefully the House Republicans will find a way to raise the debt ceiling without downing the stock market like it happened in 2011. One way to cut the budget is to follow the advice of Republican Ron Paul and bring US troops home. Kind of doubt that will happen.

    A 5 or 10% correction would be kind of normal after the big run up since the beginning of the year. Time will tell.

  • Report this Comment On May 27, 2013, at 12:50 PM, yahoouser4529 wrote:

    Yes its all going to crash. the bubble is going to bust. watch for financial meltdown 2013 exactly at the fifth anniversary of financial meltdown 2008

  • Report this Comment On May 27, 2013, at 1:27 PM, Gowithit wrote:

    I can't wait for the inevitable correction so every idiot tea party drone and conservative market analyst can claim they were right after 3 years of predicting the same thing. Lets call it broken clock theory of investing.

  • Report this Comment On May 27, 2013, at 2:07 PM, sabby2013 wrote:

    After the crash in '07 people lost jobs in droves.It was like a mass exodus. We all know the scam that took place. Peoples unemployment ran out,and they"the media" tried to make it look like unemployment was comiing down.

    So in order to make the market look like all was well the FED started the QE series. Inflation took off,and wall street posted good numbers.The FED has continued to pump money ointo wall street,and they are as addicted to FED money as a junkie is to heroin.The truth about the economy will be revealed once the FED stops pumping money into the market.

  • Report this Comment On May 27, 2013, at 2:09 PM, ThatGoofyGuy wrote:

    I think we're going to see a correction of about 40% by the middle of 2014. The Dow has been going up so fast that the supports haven't really been able to solidify itself. But that's just me. It might drop before then, but it'll drop for sure. It's inevitable.

  • Report this Comment On May 27, 2013, at 2:44 PM, rich4916 wrote:

    dan your as ass... leave well enough alone. what's your point...

  • Report this Comment On May 27, 2013, at 5:13 PM, prchapman wrote:

    oboma and his flunkies will keep it way up then sell off everything and make a fortune

  • Report this Comment On May 27, 2013, at 5:26 PM, govtisscum wrote:

    I'd like to wake up one morning and see the market down to 4000 points. I'd be laughing all day long.

  • Report this Comment On May 27, 2013, at 6:24 PM, brokeinTX wrote:

    This is a response to mr091468. Case in point. I was active duty USAF for nearly 15 years. Cut. I lost a good paying career I loved, now earn effectively 50% of what I did. With all the responsibilities incurred when I earned better pay (children.)

    Had a good record and every expectation of earning 20 year retirement. Now starting over at 40. Lucky to have a job that pays 50% of previous, and has work hours that prevent ever having my children (out of state) for visitation.

    I can't wait for the market to drop. Can't afford a house. Lost retirement. Maybe can invest and make some cash for retirement. One day.

  • Report this Comment On May 27, 2013, at 7:39 PM, ArizonaSlim2013 wrote:

    mr091468 nailed it. Thank your DC idiots that includes the big boys all the way down the line. Nothing but daily lies, you cannot believe one word that comes out of the Washington. I have no idea when the ball will drop, but when it does you can but you bippy that they will come out with clean skirts. Ask yourself why Congress has such a low approval rating. My point what can we do about it?

    Arizona Slim

  • Report this Comment On May 27, 2013, at 9:40 PM, NickD wrote:

    No one says we can't be president or work in DC we the people complain.

  • Report this Comment On May 27, 2013, at 10:50 PM, unrealban wrote:

    the saddest part about the coming correction and massive inflation is that it will all come down on the backs of the middle class and lower class Americans. it will be our responsibility to prevent this country from a full blown anarchy by maintaining our cool even when we have to move in with relatives or give up "extras" like cable television, road trips, entertainment, ect. .... Bush and Obama are two serpents of the same blood ... they have systematically destroyed this country starting with Bush's initiative to "make the American dream possible by offering an easy path to get a loan". I don't care WHAT party u root for .. both sides are blatantly corrupt and so far in over their heads. Obama is no better with his QE fraud. pretty soon the banks will own everything and everyone.

  • Report this Comment On May 28, 2013, at 2:21 AM, banmate7 wrote:

    I understand that some of you are struggling & I have a lot of sympathy. But I fear a lot of you are going to miss out on future growth & gains in North American markets. I think it's important to put the current economic situation into perspective, particularly with regards to QE.

    QE is not propping up stock markets. QE works when the Fed buys t-bonds & banks then have greater reserves. It is basically an asset ownership exchange. It is also designed to produce more liquidity. One problem: it's not doing that.

    Most QE money remains on bank books. Why? Lending is tight. American corporations have $2 - $4 trillion in cash, not needing more liquidity. Low interest compels some folks to chase yield, but no QE money is being used to but stocks.

    Corporate earnings are real. Valuations are fair. Inflation is tame. There is no bubble. This is not 1999, when we an unleveraged do com bubble burst. This is not 2008, when a leveraged housing bubble burst. This certainly is not 1929, when a leveraged stock market burst.

    Again, there is no leverage problem right now, there is no bubble. It appears as if the market will cycle within normal ranges. Personally, I think we're on the cusp of a bull market. Domestic energy, 3D printing, and the best companies on the planet make North America a compelling bet.

    You just have to learn to invest wisely. But great stocks at value & reinvest dividends. Or if you don't have the time for this, dollar cost average into low cost index funds. This kind of investing will net good returns & allow you to avoid wall street gaming of the system.

    The sky is not falling. I just fear that once again, the average person is going to wind up making the term "the irrationality of the markets" a self fulfilling prophesy. The smart money on the other hand keeps exploiting this, effectively buying low & selling high.

    In my case, I buy low & hold forever, companies like KO, JNJ, CNI, and MSFT. I'm an average person & I've made money consistently for 25 years in good & bad markets. It can be done...but repeating doom & gloom voodoo economics isn't going to get you there.

    Best of luck to all.

  • Report this Comment On June 04, 2013, at 9:18 AM, The1MAGE wrote:

    It is fun to look back at the 87 crash. I remember the news of a person freaking out, walking into his broker, and shooting him, and committing suicide.

    This story is made worse by the fact that 2 years later the market had recovered what was lost.

    I looked at the S&P index chart from 1975 to today, and that crash is barely a blip. about 105 points. (October 2 to December 4, 1987.)

    From April 27 to June 1, 2012, there was a larger drop then that.

    Patience is very important in this game.

    I like looking at the chart with a 50 day EMA. (Exponential Rolling Average.) Unfortunately it's easy to predict to past, so take this with a grain of salt, but it does seem to indicate that there was a bubble in 1987 based on how high the market was compared to the 50 day EMA.

    Currently, based in this, and another estimate, I see the S&P coming down to about $1,500, possibly under, but not breaking it's upward trend.

    If I am wrong, (hey, I'm not psychic,) it will drop further, below $1,450, it may be a sign of a new trend downward.

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