If you've been an avid follower of the stock market or have been trading regularly, you’d agree that the stock market is like a rollercoaster ride, with steep and unexpected highs and lows. Lately, there’s been a slight panic in the market due to the anticipated stock market crash 2015. There has been overwhelming evidence that points towards this stock market crash, but then there is also a white light that suggests that the stock market crash indicator might just be a false alarm. Let’s weigh these options and find out if the stock market bubble will burst this year or stay intact.
4 Indicators Of The Imminent Stock Market Crash
Signals From The World’s Biggest Investors
While the quote, “Don’t follow the crowd” does quite well in the stock market, we always look up to some renowned investors who made it large in the investing world. The idea of a stock market crash soon has been indirectly fed by the decision these investors have made recently. Successful investors like Warren Buffett, Jim Rogers, and George Soros are showing evident signs of betting against the wall street. What are these signals?
Signal 1 - The man often called the world’s greatest and most successful investor is supposedly sitting on a $55 billion in cash through Berkshire Hathaway. Are you wondering why this is a problem? Well, it’s the most sizable cash hoard the company has assembled in over 40 years! Looks like Mr. Buffett is playing safe, anticipating the market plummet.
Signal 2 - Jim Rogers, the famous American businessmen and investor has openly agreed on being wary of the US stock market in 2015. Call it his sixth sense or expertise, he believes that the Fed’s quantitative easing program will create devastating problems for the US stock market in the coming years. This uncertainty in his mind has diverted his attention to the Chinese and the Russian markets.
Vulnerable US Economy
To many the idea of a stock market crash in 2015 might sound absurd. With the US stock market looking extremely bullish, a crash is the last thing people are expecting. But, who’s to blame them? The stock market has shown great resilience since the steep dip in 2008, with NASDAQ up 275%, NYSE up 165% up, and S&P showcasing the best overall index so far. The surface might show signs of happiness, but all is not well if you dig a little deeper.
Reason 1 - Unemployment rates might be heading south and boosting the economy, but with close to 12% Americans still underemployed, red flags still hover. To add to these, the wages have been flat and over 15% of the country’s population relies on food stamps.
Reason 2 - Personal spending is definitely improving, but aren’t the debt levels increasing too? Sure, we’re buying things, but are we paying cash? A 71% GDP in 2013 from consumer spending doesn’t quite spell sustainable growth.
Weak Global Economy Projections
The IMF’s move to trim its global growth rate projection from 4% to 3.8% is one sign that tells us to not be over optimistic this year. The IMF predicted that the US economy will advance 3.1% in 2015, but the downsides from Europe, China, and Russia might put this forecast into a jeopardy. With close to 38% chance of the Eurozone falling into the cusp of rescission and the expansion of the Russian and Chinese markets might spell trouble for the global economy, and consecutively for the US economy.
Over-Valued Stock Market
The stocks in the market are becoming sorely overpriced, especially way more expensive than their 10-year average. It might not be a total surprise to many, given the flying bullish sentiments in the stock market these days. But, if you compare the price-earnings ratio to the long-term interest, you’ll notice scary parallels.
Historically, stocks have recorded a price-to-earnings ratio of close to 15, but as you can see, now that ratio has touched a 26.51 mark. This tells us that the stock prices are 76% higher than their 10-year average. Well, these can be signs of trouble in the coming year.
Why Shouldn't You Give Into The Panic?
Who would've thought that good news for the US stock market would come from the Fed’s policy! The fed has slashed interest rates and has confirmed to stick to the current decision for the next six months at least. Their current policy has made all safe investments extremely unattractive to investors, which thankfully keeps the spotlight intact on stocks. The indicators mentioned above and the usual circus of the financial media might have induced fear in your trader self, but you need a renewed attitude to handle this debated stock market crisis. Whether you are a new investor or an expert, always remember two things - There is absolutely no one who can predict the results of a stock market and basing your decision completely on economic predictions and indicators is foolish. A market crash or a recession is bound to happen, whether it will happen in 2015, 2016, or the year after that is a mystery. Stock market crash causes extreme adversities, but eventually they fade and a patient long-term investor triumph.
While there are several signs that indicate a crash, positive market sentiments and favorable fed policies might just be able to nullify these predictions.