Stocks to 10% Drop Soon?

Key Concepts

• Market Correction: A decline of 10-20% in stock market indices.
• Four-Year Cycle: A recurring pattern of lows in the stock market approximately every four years.
• Risk Asset Rotation: The movement of capital between different asset classes perceived as risky (e.g., stocks, crypto, commodities).
• Midterm Year Lows: The tendency for significant stock market lows to occur during midterm election years.
• S&P 500 vs. Gold Ratio: A comparative analysis used to identify potential market turning points.
• Parabolic Rally: A rapid and unsustainable increase in asset price.
• Expense Ratio Index Funds: Investment funds designed to track a specific market index with low fees.

Stock Market Correction Analysis & Potential Timing

The speaker anticipates a significant correction in the stock market, estimating a drop of at least 10-20% in the near future. This prediction isn’t made lightly, contrasting with his usual long-term strategy of investing in low-expense ratio index funds since 2019. He acknowledges that historically, a bull market strategy generally makes the most sense for stocks.

Correlation with Metals & Crypto

A primary driver for this forecast is the recent 40% drop in metals. The speaker emphasizes that following parabolic rallies in metals, a typical rotation into other risk assets doesn’t usually occur. Instead, a broader sell-off across risk assets is more common. He highlights the breakdown of the S&P 500 against gold, noting that the current breakdown level mirrors those seen in 1973 and 2008. In 2008, the S&P 500 experienced whipsaws – initial bounces followed by further declines – after the initial breakdown against gold. A similar pattern is anticipated. The recent decline in Bitcoin over the weekend is also cited as a potential precursor to a stock market sell-off, suggesting crypto often leads the way in these movements.

Historical Cycles & Patterns

The analysis delves into historical market cycles. The speaker points out the existence of a four-year cycle in the stock market, observable even in the 1950s, 60s, and 70s (lows in 1958, 1962, 1966, 1970, 1974, 1978, 1982). He notes that the last four-year cycle bottomed in October, potentially coinciding with a future Bitcoin bottom around October 2026. This suggests a potential start to the stock market correction sometime before October 2026. He references the 12% drop in January/February 2018 and the 20% drop throughout 2022 as examples of midterm year lows.

Midterm Year Analysis & Potential Timing

The speaker focuses on the pattern of lows occurring in midterm years. Analyzing year-to-date ROI in prior midterm years, he suggests a likely low point in late Q3 or early Q4 of 2026. While acknowledging potential short-term spikes (like a March spike), the overall trend points to a late-year correction. He specifically anticipates a 10% drop, bringing the S&P 500 down to the 6,000-6,200 range, but concedes a 10-15% drop is also plausible. He notes that 10% drops are not uncommon, citing examples from 2023 and 2024.

Supporting Indicators & Technical Analysis

Further supporting the correction thesis, the speaker points to the S&P 500 stalling and the potential for increased selling pressure. He also references the S&P 500 divided by the money supply, noting a similar pattern to the one observed in 1998, with the 20% drop in the previous year aligning with historical trends. He observes weakness in individual stocks like Netflix, Microsoft, and Apple, suggesting these are leading indicators of a broader market downturn.

Quote: “I don’t say this lightly, like I really don’t say this lightly, I think the stock market is approaching a sizable drop.” – Benjamin Cowen

Actionable Insights & Potential Opportunities

Despite anticipating a correction, the speaker maintains his core investment strategy of buying low-expense ratio index funds. However, he suggests a 10% drop could present short-term buying opportunities. He emphasizes that timing the market is impossible but acknowledges the potential for capitalizing on temporary dips.

Logical Connections

The argument progresses logically from observing a correction in metals to analyzing historical market cycles, identifying potential timing based on midterm year patterns, and finally, observing current technical indicators and individual stock performance. The connection between crypto sell-offs and potential stock market declines is presented as a leading indicator.

Conclusion

Benjamin Cowen presents a compelling case for a potential 10-20% stock market correction, supported by historical analysis, technical indicators, and current market trends. While not advocating for active trading, he suggests being prepared for a downturn and potentially utilizing it as a buying opportunity. The core takeaway is a cautious outlook, acknowledging the cyclical nature of markets and the potential for a significant pullback in the near future.