2019 will mark exactly 10 years since end of the Global Financial Crisis in 2009. It will also mark the longest period of economic expansion on record, surpassing the 1991 to 2001 internet boom. However, cracks have started to appear in the markets and fundamentals are not looking as strong as they once were. In 2018, stock markets suffered their worst since 2008. But now several warnings signs are showing red flags in the market - causing some analysts to predict a 70% correction this year.
Warning Sign #1: The End of the Economic Boom
2018 was the most volatile year in the stock market since the recession, and volatility can make stock market crises more likely. Yet, volatility is just one reason the world's biggest hedge fund managers and leading economists are predicting a 2019 crash. Another reason is rising interest rates.
Warning Sign #2: Rising US Interest Rates
The with US economy firing on all cylinders, the Federal Reserve has increased interest rates eight times since 2015. However, as the US nears full employment, there is increased danger of rising inflation and consumer prices. Increasing interest rates is a strategy to curb the rise of inflation - increasing the cost of credit and making saving more attractive strikes a balance between people spending and saving. However, there are also dangers to this approach. History shows it can lead to economic shrinkage, falling stock prices and stock market crashes. It's not surprising that interest rate hikes have preceded over 10 economic recessions in the past 40 years.
Warning Sign #3: Apple's 30% crash and China warning
For the first time in nearly 12 years Apple downgraded their sales outlook. In a letter to investors, chief executive Tim Cook blamed the company's sales problem almost entirely on problems in China - which accounts for approximately 20% of their overall revenue.
Cook explains, "while we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China". If China, is not growing then that poses a serious problem for the rest of the world as most global trade is linked to the region.
Warnings Sign #4: US data missing expectations
For the first time in Donald Trump's presidency, both economic data and sentiment indicators are missing analyst expectations. US factory activity has dropped to a two year low and has missed every estimate in Bloomberg surveys. According to Jeff Carbone off Cornerstone Wealth, "the market is pricing in recession no matter what. Now to what extent and when? That history hasn't been written yet."
Expert Predictions: A 70% Stock Market Crash
Increased volatility and rising interest rates are leading investors and economists to warn of an impending stock market crash. According to hedge fund manager Paul Tudor Jones, "We have the strongest economy in 40 years, at full employment. The mood is euphoric. But it is unsustainable and comes with costs such as bubbles in stocks and credit."
Scott Minerd, Chairman of Investments and Global Chief Investment Officer of Guggenheim Partners has forecast a 40% retracement, while economist Ted Bauman believes the market could fall by 70%. Finally, the CIA's Financial Threat and Asymmetric Warfare Advisor Jim Rickards has claimed that a 70% drop is the best case scenario.
How Traders Can Take Advantage
Source: Admiral Markets MT5 Supreme Edition - SP500, Weekly chart - Data range: 13 March 2011 - 4 January 2019, Performed on 4 January at 10:42 GMT, Please Note: Past performance is not a reliable indicator of future results, or future performance.
With the S&P 500 stock market index having broken below its year long trading range, the extra volatility is offering many trading opportunities. By using share CFDs and index CFDs, traders can profit from rising and falling markets. However, keep in mind that volatile markets can result in higher trading risks, so proper risk management and volatility protection is essential.
With huge moves expected in 2019, how will you be trading it?
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