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The stock bull market is well into its ninth year, and signs of fragility have firms like Bank of America Merrill Lynch looking ahead to the next big crash.
By BAML's calculation, the next bear market will be in line with past occurrences, and nowhere near as volatile as the 2008, 1998 or 1987 crashes.
Stock - Bull - Markets - Forever - Exercise
Stock bull markets don't last forever, which is why it's a useful exercise to start bracing for the next big crash. Or at the very least, it's helpful to know what kind of damage could result from the inevitable downturn.
In order to do so, Bank of America Merrill Lynch looked at past S&P 500 bear markets — generally defined as a 20% drop — and analyzed the volatility that has accompanied them. To them, the key is looking at the degree of price swings leading up to the crash.
Fluctuations - Bull - Market - Volatility - %
And based on the fluctuations seen during the ongoing 8 1/2-year bull market, the firm forecasts volatility of 18% for the next large downturn, which is right in line with other "classic" bear markets.
Of course, there's always the risk of a rare occurrence that rocks the market and sends measures of volatility spiking. BAML notes that the Great Depression of 1929 and the global financial crisis (GFC) in 2008 were driven by major systemic shocks, while Black Monday in 1987 and the...
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