Are We Headed Towards An Inevitable Bear Market?

It's certainly been a bumpy start to the near year for many investors, and you're not alone if you're wondering whether a bigger storm could lie ahead. In this segment of Backstage Pass, recorded on Jan. 21, Fool contributors Toby Bordelon, Rachel Warren, and Jason Hall discuss. 

Toby Bordelon: Permabear Jeremy Grantham. He says the market pain may not be over yet, which may be more pain to come. He thinks we're in something called a 'superbubble,' which I guess is like a stock bubble, but bigger and worse potentially and according to him this could mean the largest fall in wealth in history is ahead of us. The guy said the S&P 500 could fall another 44% from where we are now. I don't know, one dude's opinion maybe, what do you guys think of his prediction, first?

And second, we're trying to have some fun here. We're trying to laugh a little bit. Let's do a thought exercise. Ignore him after you tell me what your brief thoughts on him are and his prediction? Ignore him and his current talk because every crash is different, it's called something different. Let's have some fun. What do you think would be the cause of the next crash when we recover from whatever we got going on right now? Kicks us off Rachel.

Rachel Warren: I saw this and I think this may have been a story I shared. I was like, well, this is the stuff that headlines are made of. I mean, I get it. This is the thing that people are worried about right now. I don't necessarily think that Mr. Grantham is wrong in the sense that the markets have been extremely bumpy lately. I don't think we're close to seeing the end of this volatility. I think the signs have been there for a while that we might have a correction in store again, don't know the future, but highly possible we're heading ever closer to that territory.

On the one hand, I don't really see this as major news. Yeah, we're in a tough spot with the market, but this is what happens every few years. We know that the market can and will rebound. It just might take some time. But I do think it's something to bear in mind. Maybe steel yourself emotionally for it.

That there could be tougher days ahead. We know the Nasdaq plummeted again today partially as a result of Netflix (NFLX 1.73%) taking a hit after a bad earnings report, but also a continuation of these broader trends we've been seeing. Look, we know that fear sells. I think that Mr. Grantham, he may technically be right in what he is predicting.

But I don't think put that aside. I don't think any should be making any investing decision based on an emotion like fear. Because what often happens is you'll make a very permanent decision about your portfolio based on a temporary set of factors that may take days, weeks, maybe even months, sometimes to abate, but they will change.

If anything, if you're in a place to invest, you have cash on hand that you're not going to need in the next several years that you have available to deploy, to buy great companies at a discounted price in the coming weeks, and months, perhaps.

That may be the time to do that. On the other hand, something we've talked about a lot on the show is just because a bunch of people are rushing to buy stocks on sale, doesn't mean you have to.

Sometimes especially if emotions are heightened, just sit tight, wait it out a bit, let yourself recalibrate. Don't check your portfolio every day [laughs]. Check back in a little bit later.

Jason Hall: Rachel, I love that. The idea of 99% of the time as an investor, the best thing to do is absolutely nothing.

Warren: Yeah. No, I agree. 

Hall: Thank you for reminding us of that.

Warren: No, I agree. Look, I know it's easy to say and I too have been bleeding in my portfolio. I keep getting notifications of oh, this stock is at a 52-week low and this stock plunged 10% today.

I am invested in a lot of traditionally high-growth companies. I think something like 36% of my portfolio's in tech. I'm feeling it. But a lot of these companies that I own currently and I have no intention of selling. I'm holding onto them right now, even though it may hurt a little bit. In terms of what I think could potentially cause the next crash.

I saw this interesting report from Bloomberg the other day they did an interview with the CEO of Marathon Asset Management. He was saying the Fed could hike interest rates eight times to curb inflation.

That the result in his view would be we could potentially go into another recession. I think that could cause the stock market to plunge. I think even just what we're seeing right now, inflation is one of the factors that's been driving a lot of the volatility, fears about that. I think very realistically, those could be factors that could contribute.

But again, a little bit of prognostication here. We don't know the future. But seriously, if emotions are high right now, there is nothing wrong with sitting tight, waiting it out, and reapproaching the market at a later date.