Don’t Rule Out a Stock Market Crash Just Yet
There’s a perfect storm brewing for stock investors, and their wealth could be on the line. A stock market crash could be ahead.
Stock markets hate uncertainty. If there’s uncertainty, a stock market crash follows.
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As it stands, we have an abundance of uncertainty. So, ruling out massive losses on stocks could be a very big mistake.
Here are three developments that stock investors must watch closely. They could trigger a stock market crash.
1. Trump vs. the World
We have an outright trade war between the U.S. and major economies across the globe.
President Donald Trump has been imposing tariffs on goods coming in from major economies like China, Canada, Mexico, and the European Union.
It’s no surprise, then, that those countries are retaliating and imposing tariffs on American goods.
The dollar amount of tariffs on goods isn’t anything big yet, but it’s creating a lot of uncertainty as to what’s next. Could we see more tariffs on other goods?
Since the beginning of 2018, whenever we have seen an escalation in trade wars, there has been a sell-off on key stock indices. More news about tariffs could spook investors into selling.
Why do trade wars matter to stock investors? Tariffs could hurt revenues and earnings of companies on the key stock indices and could severely impact their stock prices.
Just imagine what would happen to the earnings and stock price of Caterpillar Inc. (NYSE:CAT) if China says it will be imposing tariffs on heavy construction machinery. It could have dire consequences on CAT stock.
2. Central Banks Flexing Their Muscles
The Federal Reserve is raising interest rates. This shouldn’t be news to anyone.
Other major central banks are also raising their rates or are talking about raising them in the coming months and quarters.
As the economic data starts to look stable after so long, central banks are looking to manage inflation and keep the growth trajectory intact.
Higher interest rates shouldn’t be taken lightly. The world may not be ready for increasing rates.
Rising interest rates could create a massive sell-off in the global bond market. A sell-off of bonds could lead to a panic in stocks, and we could also see a sell-off in the stock market.
3. China And Emerging Markets
It’s important that stock investors look at the bigger picture and don’t just get fixated on what’s happening in the United States. Stock markets react to what’s happening in the global economy as well.
In China and other emerging markets, we could have a crisis brewing. In China, the second-biggest economy in the world, there could be a lot of debt faults ahead.
In countries like Brazil, economic growth is falling off a cliff. Other countries are in bad shape too, and conditions could get worse.
Why does this all matter for stock investors? American companies have a significant presence in emerging markets. Problems in those countries could impact earnings and, ultimately, their stock prices.
Keeping all three triggers in mind, it’s important for investors to not get complacent. A stock market crash could be looming, and wealth preservation is important.
