Global Economic Slowdown Could Trigger Stock Market Crash, Debt Defaults, & Wealth Destruction
The global economy could be in for a very rough roller coaster ride. The economic slowdown at hand could get out of control, and dire consequences could follow. A stock market crash, debt defaults, and wealth destruction could be just around the corner.
If you’re looking at the surging stock market as an indicator of anything, you could be making a very big mistake. It’s saying nothing about the global economy or the severity of how horrendous the current economic slowdown really is.
In the words of Kristalina Georgieva, managing director of the International Monetary Fund (IMF), “Today we face a new Bretton Woods ‘moment.’ A pandemic that has already cost more than a million lives. An economic calamity that will make the world economy 4.4 % smaller this year and strip an estimated $11 trillion of output by next year. And untold human desperation in the face of huge disruption and rising poverty for the first time in decades.” (Source: “A New Bretton Woods Moment,” International Monetary Fund, October 15, 2020.)
Keep in mind that organizations like the IMF are usually on the optimistic side. If they say things are bad, you should take notice.
Why Should You Care About What Happens to the Global Economy?
Over the past few decades, business has become global. Nothing is really local anymore. So, if you’re sitting in the U.S. and think that we’re not affected by what happens in Europe, for example, that’s faulty thinking. Whatever happens in the global economy directly affects the U.S. economy and investors.
Here’s some perspective.
In 2018, 42.9% of all sales by S&P 500 companies came from outside of the U.S. In other words, almost $0.43 of every $1.00 of sales by S&P 500 companies came from outside the U.S. in that year. (Source: “S&P 500 Global Sales,” S&P Dow Jones Indices, last accessed November 4, 2020.)
If major regions of the global economy struggle, that $0.42 of sales will get impacted. Assuming nothing happens to the U.S. sales but a large portion of the global sales get hurt, do you really think S&P 500 companies will be able to report higher profits? It’s very unlikely.
If those companies don’t report higher earnings, what will happen to their stock price? It will drop.
Look at the Bigger Picture: It Paints a Gruesome Outlook
Dear reader, here’s the problem: when the stock market rallies, investors forget everything and get complacent.
Right now, a global economic slowdown is happening, and it’s severe. The stock market could be in trouble because of it.
But think on a bigger level. I’m concerned that the economic slowdown could get worse. At the moment, governments and central banks around the world are focusing on the “now.” They aren’t really thinking about what’s ahead in the coming years.
Across the board, there’s money printing and significant spending by governments. You have to question how long this could go on. Could we get to a point where governments printing money and spending hand-over-fist just won’t work? When that happens, don’t be shocked to see many defaults (be it countries or businesses), and a lot of wealth destruction could follow.