8 Warning Signs a Stock Market Crash is Coming

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If you are looking for ways to make extra money, then the stock market is one of the top places to look.

At the same time, the stock market is also a risky investment.

After all, there is a chance that the stock market may drop after you put your money into it.

Therefore, there are lots of people who are wondering how to predict a stock market crash.

When it comes to how to protect investments from a stock market crash, many people wonder, are bond safe in a stock market crash?

Even though it is true that bonds are less volatile than individual stocks, even they can drop when the stock market crashes.

I know that when the stock market starts to head south, I start to wonder what I should do with my money. The answer is that it depends! 

If you are wondering, “is the stock market going to crash,” it might be helpful to take a look at a few signs regarding the next stock market crash.

Stock Market Crash Coming: The Signs

Stock Market Crash

There are a few major signs that you should watch for if you are trying to predict when the next stock market crash is going to happen.

That way, you can act accordingly before you end up losing a lot of money.

Some of the top signs that a stock market crash might be in the near future include: 

1. Companies Are Starting To Report Declining Earnings

When you invest in the stock market, you are investing in a company or a group of companies. You are banking that those companies are going to increase in value.

This means that these companies need to continue to make money.

If these companies are starting to lose money, this is one of the top signs that a stock market crash might be coming in the near future. 

When people look at the stock market, they usually see the share price is changed from second to second.

Even though there are a number of variables that play a role, the biggest variable is the success of the company putting out the chairs.

If companies start to perform poorly, their share price is going to drop.

To be clear, one company doing poorly is not going to cause the stock market to crash.

On the other hand, if there are a lot of companies that are simultaneously doing poorly at the same time.

Then there is a good chance that the stock market, as a whole, is going to drop in response. 

Therefore, it is a good idea are you to keep a close eye on some of the biggest companies that are traded on the stock market.

If you realize that some companies are starting to report declining earnings, then this could be a sign that an economic recession is coming in the near future.

In an environment involving companies that are lagging behind in missing their earnings projections, the stock market is going to shrink as well.

When this contraction is severe, a bear market might be the result, causing people to lose a lot of money.

That is exactly what happened back in 2008 when the real estate market started to decline.

I remember a lot of people getting worried that they were going to lose a lot of money. Fortunately, the market rebounded.

2. Look at the Actions of the Federal Reserve

One of the most common sayings that I have heard about the Federal Reserve is that you should never try to fight it.

The Federal Reserve is responsible for setting interest rates for the rest of the country. The Federal Reserve is going to set something known as the central rates.

Then, the rest of the banks are going to set their own individual rates based on what the Federal Reserve does.

If the Federal Reserve is trying to pump more money into the economy, they are going to lower their interest rate.

In response, people are going to have an easier time applying for loans. Therefore, people are going to have more money to spend, propping up the economy. 

As a result, if you are trying to figure out when the next stock market crash is going to take place, you could take a look at what the Federal Reserve is doing.

If you find that the Federal Reserve is keeping their interest rates low, then people are going to keep spending money.

On the other hand, if you notice that the Federal Reserve is not making money readily available, and they could be tightening their monetary policies.

As a result, this could send the stock market south, leading to a bear market.

Keep an eye on what the Federal Reserve is doing if you want to try to predict when the next stock market crash is going to take place.

3. Cars Are a Major Economic Indicator

busy city road

I remember that I used to love cars growing up. If you love cars as well, then you should keep an eye on auto sales.

The auto market is one of the biggest industries in the country.

As a leading economic indicator, consumers are going to spend money on cars if they are doing well.

On the other hand, if the economy is doing poorly, then the average person is not going to have a lot of money to spend on a new car.

Therefore, a declined in auto sales could be a sign that the economy is tapped out when it comes to their finances. 

Think about it. If your bills are tight, you’re probably not going to be spending a lot of money on a new car.

On the other hand, if interest rates are low, you are probably going to have an easier time taking out an auto loan.

Therefore, you are going to be able to put down a lower down payment in order to get your dream car.

The stock market is used as a reflection of the economy as a whole. When the economy is doing well, people have extra money to spend on a car.

Therefore, take a look at what some of the major auto companies report around their earnings times.

If you notice that there is a decline in auto sales, and the rest of the economy may follow shortly thereafter.

This could lead to a bear market and a stock market crash.

4. A Decline in Home Sales

Decline in Home Sales

If cars are one of the biggest indicators of a healthy economy, then home sales are even more important.

Cars and homes are the two biggest purchases that people are going to make during the course of their lives.

Of the two, homes are significantly bigger. Therefore, you want to make sure that you keep an eye on what the real estate market is doing.

I remember that when home sales started to shoot up back in 2008, I thought the economy was doing well.

Traditionally, a lot of home sales is a sign that the economy is doing well.

Unfortunately, banks were lending money to people who could not afford a home.

As a result, they defaulted on their home loans and everyone lost a lot of money. 

On the other hand, you still want to make sure that you keep a close eye on what the real estate market is doing.

When the economy is doing well, people have the money to buy new homes.

Now that the banks are more regulated than they were in the past, it is unlikely that we are going to see a repeat of 2008.

A good economy means that people are able to land successful jobs, which will provide them with the extra money they need to purchase a beautiful home.

If home sales are starting to go down, and this is a sign that the economy is struggling.

This might mean that banks are raising their interest rates or that the Federal Reserve is not providing Credit Unions with the liquidity they need to provide people with the money they require to purchase a new home.

If home sales are starting to drop, a stock market crash might be coming. 

5. Watch For a Rise in Inflation

Inflation

To some extent, a small amount of inflation is good. Traditionally, you should look for inflation to hover somewhere between 1 and 2 percent annually.

On the other hand, if you notice that inflation is starting to accelerate, this is a sign that the economy is struggling.

As a result, a stock market crash is likely going to happen in the near future. 

When the economy starts to struggle, the central bank is going to respond by printing more money.

This is essentially what the Federal Reserve does when it decides to lower interest rates.

The most extreme example of printing money leading to hyperinflation is Germany after World War 1. Germany was an economic calamity after World War 1.

They responded by trying to print more money. When there is more money in the economy, the overall value of each individual dollar is going to drop.

Therefore, money essentially becomes worthless. It only makes sense that a stock market crash is going to accompany this situation. 

Even though it is unlikely that we are going to see an example of this extreme in the near future.

It is still important for you to keep an eye on what happens with inflation.

When inflation gets out of control, the cost of goods and services in the country is going to increase dramatically.

Therefore, spending is going to come to a halt as people will not have money to purchase anything.

This is going to further damage corporate profits, harming the stock market in the process.

When earnings begin to drop, a bear market results and the stock market will crash. 

6. Stocks that Drop Even When Good News Hits

Stocks that Drop Even When Good News Hits

There’s also a chance that the stock market May crashed when the evaluation of companies is too high.

One of the ways that you can figure this out at the take a look at how share prices react to the good news.

Usually, the good news is going to be announced when companies announce earnings.

If companies missed their earnings, this is a sign that the stock market is struggling.

Declining earnings is one of the biggest signs that the stock market is going to crash.

Therefore, it only makes sense that accompanies beat their earnings estimates, their share prices should jump.

This should make you happy if you hold shares and one of these companies that dramatically exceed their earnings projections.

On the other hand, there are some situations where companies may experience a drop in their share price even in response to good news such as an earnings beat.

If a company that you hold beats its earnings and its share price drops anyway, you might be wondering why this happens.

This happens if the expectation of an earnings beat was already built into the share price of the company.

If this expectation is already built into the share price of the company, then this is a sign that the company is overvalued. 

Again, one company is not going to dictate the entire direction of the stock market.

On the other hand, if you notice that this is a trend across the entire stock market, then there is a possibility that the stock market itself is overvalued.

This may indicate that a correction is coming in the near future. This could even take the form of a stock market crash.

7. There Is a Global Recession Taking Place

Global Recession

The United States has the largest economy in the world. Therefore, the United States largely dictate the direction of the rest of the globe.

On the other hand, if the United States has the only stock markets that are doing well while the rest of the world struggling.

The United States is not going to be able to hold out very long.

Even though it is true that the economic environment in the United States is incredibly resilient, stock market investors need to be wary if they noticed that the rest of the globe is struggling.

The reality is that the United States is not an isolationist country. We have trade partners that depend on us all over the world.

If our trade partners are struggling, this is going to impact us as well. We have a high domestic output that is largely fueled by government spending and consumer sentiment.

On the other hand, when the other economies in the world are contracting, the United States can suffer as well. 

Therefore, I spent a significant amount of time keeping up with what is going on across the globe.

If I find that other countries are starting to struggle, I start to get concerned that the United States market is going to struggle as well.

Even though a recession in one country does not necessarily mean that a recession in the United States is coming, multiple recessions taking place all over the world is not a good sign.

It might be a sign that a bear market is coming in the near future. 

8. Political Instability

Political instability

Finally, politics and the economy are inextricably tied to one another. The reality is that people trade stocks on the stock market largely based on faith.

They have faith that the economy is going to continue to do well even after they purchase shares.

If there is political instability going on, this is going to significantly shake up the faith that people have in the economy. 

For example, if there is a lot of domestic turmoil taking place in the United States, many people are concerned that this is going to impact the stock market.

If people do not know what is going to happen in the political world, it only makes sense that they are going to have trouble predicting what is happening in the economic world as well.

Therefore, people are going to be hesitant to invest their money in the stock market, causing the stock market to drop in response. 

It isn’t just domestic politics the people have to keep an eye on. It is important for people to keep an eye on international politics as well.

Remember that the United States has trade partners all over the world. We depend on the economic policies of the other countries in order to provide us with a favorable trading environment.

If international politics is becoming increasingly unstable, this is going to have an impact on the trade deals that we have in other countries.

This can impact corporate earnings here in the United States, impacting the stock market as a result.

Therefore, international politics can also play a role in a stock market crash.

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