Why the Stock Market Could Crash
Stock market crashes are sudden, dramatic declines in stock prices that result in significant loss of paper wealth. They are typically the result of panic selling or underlying economic factors. They typically follow a period of economic bubble or speculation. Read on to discover the reasons why the market could crash. And learn how to protect yourself against such an event. Listed below are some reasons why the market could crash. Weigh your options carefully. Do they make sense to you?
Financial institutions may also be at risk of bankruptcy. The five largest banks in the US controlled only 17% of the total banking system in 1970. In 2010, they controlled 52%. Global climate change is also a potential risk factor. In the US, we face the same risk as in other countries. In Europe, debt problems and student loans could lead to a market crash. In Japan, after a tsunami in 2011, stocks plunged 17 percent.
Despite recent positive economic news, there is plenty of reason to be concerned about the stock market crash. The U.S. is embroiled in a trade war with China that may extend into 2020. The costs of doing business are also rising. As a result, the market could fall, putting pressure on profits and causing the Fed to back off rate hikes. While it’s not the end of the world, it could lead to a prolonged recession.
Recent studies have suggested that the stock market could crash in 2020, with a decline of 20% over 2008 levels. Recent downgrades by Goldman Sachs have indicated that the U.S. economy could suffer a recession similar to the Great Recession. Investors are starting to pull back from the risky and sensitive sectors of the market. While this volatility is normal in the short term, investors are worried about a possible downward trend that may result in even greater losses in the future.
If the U.S. economy continues to suffer, it’s possible the stock market could crash. A new emergency financing bill is due to be signed by the President on February 18 to keep the federal government running. This funding bill is only temporary, as the major parties are ideologically opposed. The resulting political chaos in Congress could have tangible consequences for the economy and the stock market. If the stock market crashes, the government might be forced to raise rates to keep it running.
The current P/E ratio of the S&P 500 is nearly 40, the highest since the dot-com stock bubble burst in 2000. Stocks with an overvalued P/E ratio are likely to experience sharp declines in price. Small businesses account for about 62% of private sector jobs. Many of these companies struggle to stay afloat, forcing them to cut staff, services, and even close their doors.