Whether stocks are rising or falling, most investors have learned not to “fight the trend.” It’s a maxim that has helped investors for centuries. If stocks are bullish, don’t bet on a downtrend. If stocks are bearish, don’t bet on an uptrend. Or, put another way, the “trend is your friend.”

Which brings us to the current market.

Could the Stock Market Crash Again?

North American stocks entered 2022 at record levels but have since experienced a major sell-off. While contrarian investors have been calling for a stock market correction of some sort for years, analysts are taking a more serious look at the prospect of a near-term stock market sell-off.

Legendary investor Jeremy Grantham is calling for a 40% stock market collapse from current levels. His opinion is worth paying attention to. He’s not a perma-bear. But he does have a history of accurately predicting market bubbles.

He predicted the dot-com stock market crash of 2000 and the 2008 collapse of the U.S. real estate market. He’s also in charge of roughly $60 billion at asset management firm Grantham, Mayo, & Otterloo.

According to Grantham, the U.S. is in the fourth super bubble of the last 100 years. Moreover, for the first time, U.S. stocks are experiencing simultaneous bubbles across all major asset classes.

The so-called “Goldilocks” period of the last 25 years is ending and investors need to prepare for sustained, higher inflation, slower growth, and product shortages. He predicts a stock market crash of almost 50% and said there is nothing the Federal Reserve can do to stop it.

Obviously, this does not mean we’re going to experience a stock market crash or stock market correction. But even the current sell-off, which has seen the NASDAQ and S&P 500 tumble into correction territory (10% off recent peaks) has created a window of opportunity.

Which Stocks Will Do Well in a Stock Market Correction?

Not all stocks perform the same during the economic cycle. Some stocks even do well during stock market corrections. A number of larger value stocks have even shrugged off the recent stock market correction. So too have stocks outside the U.S.

For buy-and-hold investors, long-term results are more important than near-term volatility.

Today’s roller-coaster ride is certainly unsettling, but investors with a long-term investing horizon understand that, over the years, their diversified portfolio can actually beat the market, which means they’re probably not as worked up about what’s going on right now on Bay Street and Wall Street.

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