The stock market is always fluctuating. Even when it’s on the way down, it’s a safe bet it will come back up before too long. But sometimes a real economic crisis comes along, like the one in 2008. The market crashes, and investors lose almost everything.
Fortunately, if you look carefully at the signs, it’s possible to see a financial cataclysm like this coming ahead of time, and take steps to protect your own assets. And it looks like there’s another one right on the horizon. Here are seven reasons why the stock market is headed for a crash within the next year.
- The Bull Market Is Drawing to a Close
It’s difficult to grasp the possibility that disaster is looming when the markets are in the midst of an upswing. It’s human nature; when things are going well buying is encouraged. The problem is, this bullish outlook has been going on for the last seven years. It can’t last forever, and once it’s over, things will quickly go the other direction.
- Oil Prices Keep Declining
To the average person putting gas in their car, this seems like a good thing. But for investors it poses a serious problem. Oil prices tend to correlate with the stock market. When one falls, the other isn’t far behind. And as the industry continues suffering the effects of the oil debt bomb, a market correction seems imminent.
- Interest Rates Have to Increase
For seven years, interest rates were near zero. Then in December of 2015, it finally went up, very slightly – and pressure is mounting on the Federal Reserve to keep moving on this. Even though the changes are likely to be incremental, it’s a precursor to a number of economic jolts. It will become more expensive to borrow money, which means mortgages and credit card payments increase.
Because of this, the average person has less disposable income. Businesses suffer as a result. Prices go up, and stocks go down. Since the Fed intends several future rate hikes, interest could go up even further in the coming months, sending stocks into a downward spiral.
- The Housing Market Is Failing
Real estate prices are currently very high. The problem is that the average income is still fairly low. That, combined with the raised interest rate on mortgages, means that houses are too expensive for most people to buy. Fewer homes are going on the market, and the ones that are tend to stay there much longer than they should, rather than getting sold. This is making it virtually impossible for property investors to get a good return.
- Bond Yields Are Declining
The return on junk bonds often serves as a harbinger for the stock market and other economic factors. Before the dot-com bubble burst, bonds were plummeting. They then went up again, but came down right before the crash of 2008. Now, for the last 18 months, bond yields have been declining once again.
By now you’re likely very familiar with Britain’s decision to leave the European Union, and the effect it’s had on the world economy. Not only did the value of both the pound and the euro go down, the stock market declined sharply as well, losing a total of $2.1 trillion in June. Keep in mind that was just the announcement of the decision. When the actual exit takes place, there’s sure to create even more economic turmoil, not just for Europe and the UK, but for companies that do business with them all around the world—particularly in the U.S.
- China’s Economic Slowdown
For decades, China has been one of the countries to help drive the world economy. As they expanded, so did Wall Street, which grew by 10% over the last three years due to China’s help. But in 2016, things have been different. China is currently going through an economic slowdown. In January, their stock market was shut down several times in the space of one week, and it’s declined 18% in the aftermath. Given the effect that their prosperity had on the stock exchange in the U.S., their hardship will likely have just as big an impact to the downside.
Any one of these factors, along with a myriad of others, could easily send the stock market into a decline. But all of them combined portend a very fraught new year. The writing is on the wall. But with this advance warning, you have a chance to prepare yourself. Secure your investments, including retirement accounts you’re going to need, so that you can make it through this next economic crisis without losing everything.