We could be approaching the end. No, I'm not a doomsday prophet predicting the end of the world. Instead, I'm merely acknowledging that the end of the bear market could be in sight.
The S&P 500 only needs to rise another 3% or so to begin a new bull market. It's possible that could happen as early as next week.
However, investors shouldn't get the cart before the horse. There's no guarantee that the current momentum will continue. Will the stock market crash again soon?
Image source: Getty Images.
The simple answer
I had an accounting professor in college talk about his previous career in the business world. He regaled the class with a story about discovering that a company he worked for had a "GOK" account on its ledger. He didn't know what it was, so he asked an accountant who had been there for years about it. The accountant responded," GOK stands for 'God only knows'!"
GOK is the simple answer to our question. No person knows for sure if the stock market will crash soon. Don't believe anyone who says otherwise.
Even Warren Buffett acknowledges his limitations on this front. He wrote in an opinion article published by The New York Times in 2008 that he didn't have any idea whether stocks would rise or fall over the next month or year.
If Buffett -- one of the greatest investors of all time -- doesn't know what the stock market will do, neither will anyone else. We're left with the GOK answer.
What history shows
However, we can at least look back to see what has happened in the past. For example, over the last 12 months, the S&P 500 has experienced a downturn every time that it's begun to pick up momentum.
The above chart shows two previous rallies of 10% or more over the last 12 months: the first one in late March 2022, and the second starting in mid-June 2022. In both cases, the S&P 500 subsequently fell to a lower level than before the rally began.
On a more positive note, though, history could be on the side of investors over the longer term. The S&P 500 declined by 19.4% or more only six times in the past prior to 2022. In four of those cases, the index soared at least 23.5% higher in the following year. The only two outliers occurred in 1930 and 1931 during the early years of the Great Depression.
Based on this analysis, the chances of the S&P 500 soaring 20% or more in 2023 appear to be pretty good. If so, that would mean the stock market is unlikely to crash again soon.
Your best strategy
Of course, history doesn't always repeat itself. Investors can't be certain about what the stock market will do over the near term.
Your best strategy, therefore, is to focus on the long term. As Buffett wrote to Berkshire Hathaway shareholders after the stock market plunge in 2008, 75% of the time since 1965 (the year he took over Berkshire) the S&P 500 delivered a positive return. The percentage increased since that letter was released.
There's a reliable way for investors to make money: Buy an S&P 500 index fund and hold it for at least five years. This approach has been profitable nearly 88% of the time. Even better, extend your holding period to 20 years. Doing so has made money 100% of the time since 1872.
No investor knows if the stock market will crash again soon. But we can all be pretty certain that it's going to go up over the long run.
