Gloomy Outlook for the Global Economy Means Stock Market Crash Likely

Glommy Market

Investors Beware, Stock Market Crash Could Be Looming

Remember, stock markets are a forward-looking animal. A stock market crash could follow if the future looks gloomy.

Advertisement

It’s important for investors to pay attention to the big picture and look forward. Sadly, as it stands, we have a lot of catalysts at play that could cause a stock market crash.

Investors, look out for what’s happening on a global level.

There are several problems…

We have the possibility of a full-on trade war between the U.S. and China. For a brief period, there was some hope that it won’t happen. Now, the hope is disappearing very quickly. (Source: “How Trump Led the U.S. and China to the Brink of a Trade War,” Bloomberg, May 3, 2018.)

Advertisement

Don’t forget, the U.S. and China are the biggest economic hubs in the global economy. What do you think will happen to the global trade if, all of a sudden, two major economies start imposing tariffs on each others’ goods and services?

It won’t be good for businesses. It could really spook stock investors. They could sell and run for the exits.

Beyond this, the eurozone’s slow-growth problem is reviving again. Over the past few years, the European Central Bank (ECB) was printing money and keeping interest rates low to spur growth in the common currency region. It is failing.

According to recent economic data, eurozone growth is stalling. In the first quarter, the region grew by 0.4%—its slowest pace in 18 months. (Source: “Eurozone growth hits slowest pace in 18 months,” Financial Times, May 2, 2018.)

A lot of American companies operate in the eurozone. Slow growth could hurt their sales and profit. It could impact their stock prices directly.

Problems in the U.S. Economy Brewing

Look inside the U.S. as well. There are also several factors that suggest a stock market crash could be likely.

Know that markets don’t like political uncertainty. Unfortunately, we have a lot of it these days. This could be a cause for investors to panic, and we could have a stock market crash at hand very quickly.

On the political front, there’s a deadlock in Congress. We are not seeing a lot of policies being made. This is not good.

The only major thing we have seen so far from the Trump administration is the tax cuts.

But know that these tax cuts could really put a dent on the U.S. government’s revenue and could really impact the overall national debt figures—which currently stand at over $21.0 trillion and are expected to grow.

Looking at the economic data, there are not many reasons for investors to be optimistic either.

We see the leading indicators say that the U.S. economy is taking a wrong turn. It looks like the U.S. economic data could be peaking and a recession could be likely. You can read more about it here: U.S. Economic Data Could Be Peaking, Recession Seems Much Closer.

Stock Market Outlook: Focus on Capital Preservation

Dear reader, year-to-date, key stock indices like the Dow Jones Industrial Average have fallen close to four percent and they are now roughly 10% from their highs made earlier this year.

As I see it, this is a sign for investors to be careful and focus on capital preservation.

A stock market crash could be looming, given what’s happening on the macro level.

Mark these words: Don’t get too complacent. Stocks have been a disappointing investment so far in 2018. They could disappoint investors much more, later in the year and in early 2019.

Investors beware.

Read More on LombardiLetter.com
Exit mobile version