Are we in a financial crisis?
We are all asking ourselves the same question, are we in the next big financial crash or is the worst already over?
To answer this question, let's look at the S&P 500 since the beginning.
The S&P has only seen one really big/long correction in its history and that was triggered by the Great Recession in the 1930s and the following Second World War.
Since then, the S&P 500 has only seen one strong uptrend.
If we take a closer look at this uptrend since WWII, we can see very clearly the subordinate waves 12345.
1. impulse wave: recovery after WWII and start of globalisation.
2. correction wave: 1970 recession and oil crisis
3. impulse wave: digitalisation and increased globalisation (EU, China, etc.)
4. Correction wave: dot.com bubble and 2008 financial crisis
5. impulse wave: digitalisation and automation of value chains
The two correction waves were each triggered by major negative economic events.
The individual phases are shown in time in the chart below. A certain temporal correlation can be seen. The upward trends lasted approx. 8700 to 9100 days and the downward trends approx. 3300 days.
Current situation
Currently we are in a strong uptrend that has lasted since 2008 and purely in terms of time has lasted only half the time than the two previous uptrends.
But the economic situation is worse than in 2008 and worse than in the 1970s.
Economic situation
- Extremely high energy costs and production costs weigh on businesses and households
- Interest rate hikes put additional strain on the economy
- The higher interest rates are to remain for the time being in the medium term
- Higher costs mean lower profits
- Lower profits and higher capital costs mean less investments
- Unstable housing market in the USA, Europe and China
- Industry and trade under massive pressure
- Stock market still largely overvalued
- China - Taiwan conflict
- Ukraine - Russia conflict
- Unstable society
- Etc.
All these individual events are having a negative impact on the global economy and together form a perfect foundation for a deeper recession. Many negative effects will only become apparent in the coming months, especially in the companies' key figures.
In previous crises, even minor problems have led to crashes.
Therefore, we are preparing for a falling/stagnating economy in the coming months, even years, which will also have a corresponding impact on the financial markets.
In the current economic situation, to assume that the correction is now over and that we are now testing one high after another again can be very dangerous.
We do not assume that the next few months will only be downward. Every overriding downward trend also has its (major) counter-corrections to the upside.
Therefore, we may also experience months of euphoria and months of stagnation.
Moreover, we do not expect such a strong and prolonged correction as in the 1930s, as sentiment was much worse then than now.
The correction course shown in the chart is only symbolic of a correction.
Pessimism - Realism
We do not represent pessimism here, we represent realism.
We want to encourage you to think about this realistically. In the current crisis landscape we are in, can you imagine that the correction is now over and we will test one high after the other and see an all-time high again in a few months? Especially considering the previous crises, what triggered them and how long they lasted.
We no longer ask ourselves whether the crisis will come, but only how long it will last and how it will proceed in order to use the movements profitably.
Price target of the correction?
The previous corrections (1970s) & (2000 + 2008) were each able to form a bottom between the 0.5 and 0.618 FIB level and start the next uptrend from there.
Projecting this onto the current correction, the price target of the correction would be around $2,500, which can also be confirmed very well on the chart with resistances, trendlines and many other indicators.
However, this is still very difficult to judge in the current situation, as it depends on an enormous number of factors, which are not yet meaningful enough, after all, we are only at the beginning of the correction.
We hope that this article was helpful for you and that you may now look at the current situation from a different perspective.
To answer this question, let's look at the S&P 500 since the beginning.
The S&P has only seen one really big/long correction in its history and that was triggered by the Great Recession in the 1930s and the following Second World War.
Since then, the S&P 500 has only seen one strong uptrend.
If we take a closer look at this uptrend since WWII, we can see very clearly the subordinate waves 12345.
1. impulse wave: recovery after WWII and start of globalisation.
2. correction wave: 1970 recession and oil crisis
3. impulse wave: digitalisation and increased globalisation (EU, China, etc.)
4. Correction wave: dot.com bubble and 2008 financial crisis
5. impulse wave: digitalisation and automation of value chains
The two correction waves were each triggered by major negative economic events.
The individual phases are shown in time in the chart below. A certain temporal correlation can be seen. The upward trends lasted approx. 8700 to 9100 days and the downward trends approx. 3300 days.
Current situation
Currently we are in a strong uptrend that has lasted since 2008 and purely in terms of time has lasted only half the time than the two previous uptrends.
But the economic situation is worse than in 2008 and worse than in the 1970s.
Economic situation
- Extremely high energy costs and production costs weigh on businesses and households
- Interest rate hikes put additional strain on the economy
- The higher interest rates are to remain for the time being in the medium term
- Higher costs mean lower profits
- Lower profits and higher capital costs mean less investments
- Unstable housing market in the USA, Europe and China
- Industry and trade under massive pressure
- Stock market still largely overvalued
- China - Taiwan conflict
- Ukraine - Russia conflict
- Unstable society
- Etc.
All these individual events are having a negative impact on the global economy and together form a perfect foundation for a deeper recession. Many negative effects will only become apparent in the coming months, especially in the companies' key figures.
In previous crises, even minor problems have led to crashes.
Therefore, we are preparing for a falling/stagnating economy in the coming months, even years, which will also have a corresponding impact on the financial markets.
In the current economic situation, to assume that the correction is now over and that we are now testing one high after another again can be very dangerous.
We do not assume that the next few months will only be downward. Every overriding downward trend also has its (major) counter-corrections to the upside.
Therefore, we may also experience months of euphoria and months of stagnation.
Moreover, we do not expect such a strong and prolonged correction as in the 1930s, as sentiment was much worse then than now.
The correction course shown in the chart is only symbolic of a correction.
Pessimism - Realism
We do not represent pessimism here, we represent realism.
We want to encourage you to think about this realistically. In the current crisis landscape we are in, can you imagine that the correction is now over and we will test one high after the other and see an all-time high again in a few months? Especially considering the previous crises, what triggered them and how long they lasted.
We no longer ask ourselves whether the crisis will come, but only how long it will last and how it will proceed in order to use the movements profitably.
Price target of the correction?
The previous corrections (1970s) & (2000 + 2008) were each able to form a bottom between the 0.5 and 0.618 FIB level and start the next uptrend from there.
Projecting this onto the current correction, the price target of the correction would be around $2,500, which can also be confirmed very well on the chart with resistances, trendlines and many other indicators.
However, this is still very difficult to judge in the current situation, as it depends on an enormous number of factors, which are not yet meaningful enough, after all, we are only at the beginning of the correction.
We hope that this article was helpful for you and that you may now look at the current situation from a different perspective.
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