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Is a Stock Market Crash on the Horizon?

by Bruce Haring

The signs have been clear for a while that the country is headed for economic trouble. Oil prices and interest rates are both down, housing is becoming increasingly difficult, and the markets are volatile. But you’re probably thinking that it’s just a minor downturn that we’ll recover from in a few months. It’s not like we’re headed for another market crash, right? Well, the UBS believes that’s exactly what’s about to happen.

The End of the Credit Cycle

At the beginning of what experts call “the credit cycle,” money is easy to borrow and relatively cheap to repay, as interest rates are low. This is where we currently are in terms of debt,and many corporations are using that fact to leverage their companies and take out loans. This in turn helps them to increase profits and defray federal taxes.

But debts aren’t going to remain at this level for much longer. As the cycle ends, funds are more difficult to obtain and interest rates increase, sometimes drastically. And UBS analysts are predicting that that end is fast approaching.

When that happens, profits will fall, as will stocks. This will then lead to a loss of investor confidence, sending the markets down even further. In that situation, analysts are projecting that, in the best case scenario, stock prices will drop slowly but steadily across the board. Worst case scenario: we’re headed for a full blown crash.

Other Contributing Factors to an Impending Crash

Corporate debt isn’t the only factor contributing to this impending economic doom, though. Bonds, which have always been considered one of the more reliable long term investments, are losing value in their yields. Likewise, interest rates are down, making it difficult for banks to make money.

As a result, many people are turning to stocks in an attempt to increase their wealth, as their traditional methods are failing them. But this sudden interest is causing issues with risk pricing. The inherent risks aren’t being shown the way they should, making investments appear safer than they are and ultimately contributing to market volatility.

The economy is becoming uncertain all over the world. Brexit has led to market fluctuations in both the UK and EU, as well as a significant drop in the value of both the British pound and the euro. China, meanwhile, is experiencing its own economic slowdown, which has created a ripple effect through many of the entities they do business with—including U.S. corporations.  What all of that means, in a nutshell, is that the global economy is experiencing serious, widespread problems. But how does that impact you?

Securing Your Investments Against Disaster

With the world economy already unstable, the end of the credit cycle and a drop in market prices could spell disaster for everyone. Will it really lead to a crash? Only time will tell. But it would behoove you not to wait around to find out.

When the 2008 economic crisis occurred, many hardworking people lost large chunks of their retirement portfolios in the process, leaving them without enough to live on once they exited the workforce. A lot of IRAs/401(k)s are only just now recovering from the hit they took eight years ago. The last thing you want is to risk something like that happening to you again, now that you’re a decade closer to retirement.

Even if the best case scenario turns out to be true, and the stock market is only headed for a gradual downturn, rather than an actual crash, it’s still important to secure your investments against those losses now, before it’s too late. Make sure you have a safety net that will maintain its value over time and help you grow your portfolio, even as those around you are being decimated. You’ve had your fair warning. What will you do to keep yourself and your investments safe?

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