The Last Time the S&P Did This, the Market Crashed 20% in a Day

[00:00:00] Speaker 1: The S&P 500 just did something it's only done four times since World War II. It gained 16% in just two months, April and May. Now, three of the last four times this has happened, the economy was coming out of a recession, which makes sense. The economy tanks, stock go with it, and then they snap back. But the fourth time that this happened was in 1987, just before the Black Monday crash, where the stock market lost 20% in just one day, the worst single crash in American history. But we're not coming out of a recession right now. So what exactly is driving this rally? What's making investors so confident? And what can we learn from this about what's coming next? When asked about the stock market, the explanation most people give is that it's AI, which honestly isn't crazy. There is an insane amount of money being poured into this technology, at a scale that's difficult to wrap your head around. We're talking about $2 to $3 trillion of AI infrastructure investment just this year alone. And all of these major companies are racing to secure their positions. And if AI can deliver on even half of what its believers think, we're talking about higher productivity, new industry, deflationary pressure on costs, then the higher stock prices make sense because the future will be worth more. But here's the thing about that story. We've heard it before. Railroads transformed travel, electricity transformed industry, and the internet transformed almost every single aspect of modern life. And the people who believed that those technologies would reshape the future, well, they were right. But being right about the technology didn't protect them from losing everything on their investment. Railroads saw one of the most catastrophic boom-bust cycles in American history. Electricity stocks absolutely collapsed in the 1930s after a decade of euphoria. And the NASDAQ, the index built on the promise of the internet, well, it dropped 78% between 2000 and 2002. The technology and the way they revolutionized the world, that was never the problem. But the expectations as it pertained to the stocks were. So when I think about today's stock market, the question I keep coming back to is how much of that future is already baked into today's prices. Because there actually is a simple way to measure it, and what it's showing us right now should give every investor pause. This is the Shiller P.E. ratio, and right now it's flashing red. Now, a normal P.E. ratio price to earnings shows the difference between the price that you are paying for a stock versus the earnings of the company over the last year. But there are good and bad years. So Shiller takes the last 10 years of data inflation adjusted so that you can really get a good sense of the valuation of the stocks. But if we look at today, it is only a few percentage points away from surpassing the dot-com bubble to be the most expensive stock market valuation in our history. Not since 2020, not since 2008, but ever of all time. To put that into perspective, back during the dot-com bubble, investors were paying $44 for every $1 that the market produced. And today, we are closing in on that gap. So investors aren't just optimistic. They're creating a future that isn't even close to any reality we've seen. The last time, things were this optimistic is when the NASDAQ fell 78%. What we're seeing today is absolutely a fear of missing out. Breed and concern that they are going to be left behind as this bubble continues to grow. And I can't blame people for wanting a piece of the action, not when you're seeing 16% returns. But again, mind you, this has only happened four times. Three were coming out of a recession, and that is not the case today. And the other was right before Black Monday. Now, a high valuation does not necessarily mean that the stock market is going to crash tomorrow. A market can stay expensive for a very long time, but there are other signs, other markets that we should be looking at. Which brings us to the bond market. And I want to talk about these two together because the stock market prices for innovation, but the bond market prices on risk. Because right now, the bond market is looking at the economy, but reaching a very different conclusion about where we're going next. U.S. Treasury yields are continuing to rise. The 30-year Treasury crossed over 5% to the highest level seen since 2007. And it's not just the United States. Sovereign debt around the world is getting more expensive. Which, if everyone in the stock market is correct, that it's going to keep going up, up, up, you would expect the opposite to be happening in the bond market, right? If an era of productivity and growth and deflation was on the horizon, the way that the valuations of the stock market are telling us, then we would expect to see cheaper rates, lowering yields, easier borrowing as we enter this new era. But that's not what's happening because bond investors are focused on the bigger picture, the debt. As the United States debt closes in on $40 trillion, the U.S. is going to be forced to issue more treasuries. Those treasuries are going to be issued at higher rates, meaning that the interest on the United States debt is going to continue to grow, putting pressure on the entire system. Two totally different pictures, depending on where you look about what the future is holding next. Which is why I'm always talking about zooming out. But today I actually want to zoom in to the American consumer. Because too often, when people talk about the stock market or the economy, they act as if they're one. But the American economy, the U.S. economy, is really based on the U.S. consumer. Consumers buy products, they drive the economy. And yet, according to a new report, American savings have now dropped to 2.6%. That's low. In fact, besides a brief moment after 2020, that is the lowest percentage of savings Americans have had since 2008. So it also makes sense that the University of Michigan Consumer Sentiment Report just hit the lowest level since they started measuring back in 1952. Meaning the American consumer is under real pressure. The bond market is seeing real risk with the United States debt. And somehow, the stock market is having their best two-month run since right before Black Monday. But here's the truth. The debt crisis isn't an AI problem. The deficit isn't going to get fixed by NVIDIA. The U.S. Treasury Department isn't sitting around trying to figure out what's going to happen next with AI. The bond market is pricing in something much simpler and easier to understand, which is just basic math. Can the government continue financing an ever-growing debt burden without inflation absolutely ripping higher? One of those markets is focused on the future. The other one is grappling with the realities of today. So yes, there are many investors out there who believe that future growth is going to solve today's problems. But there are also many bond investors out there who are looking at today's problems and wondering, are we even going to make it to tomorrow? Tell me what you guys think in the comments below. Which camp do you fall into? Do you think that growth is going to outpace this crisis we're in? Or do you think that the debt crisis can even go on the way it's been going on for another year, two, five years? Because here at ITM Trading, we study patterns throughout history, specifically around currency life cycles. And we are reaching the end of the dollar's currency life cycle. And what I mean by that is that the triggers are all in place for runaway inflation leading to hyperinflation and ultimately a currency reset. We are at that breaking point. And when people say, ah, they've been warning about it forever. What's different this time? Everything seems fine. The stock market's going up. Big deal. I tell them what's different this time is that the amount of debt we have at the interest rates that it's costing us to service it, it's only going to keep growing. That is the straw that breaks the camel's back. So do not get me wrong. I'm all for making a profit. And if you are heavily invested in the stock market and you have the funds to do so and you feel comfortable with your investments, by all means, I'm not a financial advisor. But I am here to say that there's a lot of risk in this system and all of the alarm bells are there in place ringing. And my advice to everyone watching is just to make sure that you are protected outside of that system because if the next Black Monday or worse, in my opinion, or worse, hits tomorrow, you're going to be thinking, ah, I wish I had taken the time to protect myself outside of the system and set myself up for what's coming next. Now, if you have any questions about that or if you don't have a strategy in place or you want a second opinion, you can always call us at the number below. We at ITM Trading, we are a full service, physical gold and silver dealer, but so much more than that, we help all of our clients prepare for what's coming next. So if you have questions, we have answers, call us at the number below, scan the QR code if you want to set up a time to talk to someone from our team, one of our expert analysts. And as always, if this video is helpful, please like, share, subscribe, it helps so much. And in the meantime, thank you so much for being here. I'm Taylor Kenney with ITM Trading, your trusted source for all things gold, silver and lifelong wealth protection. Until next time. We'll see you next time.