The Motley Fool

3 reasons we could see a stock market crash in 2020

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Close up of newspaper headline for financial crisis news
Image source: Getty Images.

With economic uncertainty remaining elevated, there’s been a fair bit of talk about a stock market crash recently. Many investors are concerned that 2020 could be the year in which the current bull market – which started in early 2009 – finally ends.

Personally, I think it’s impossible to say whether we’ll see a near-term market crash. There are certainly some alarm bells going off right now, but there are also signs that this bull market could have further to run. With that in mind, in this article, I’ll look at three reasons why we could potentially see a stock market crash next year. Then, in an article tomorrow, I’ll look at three reasons why we may not see a stock market crash in 2020.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Economic growth is slowing

The first reason there’s a chance markets could crash in 2020 is that economic growth is slowing. According to the International Monetary Fund (IMF) – which recently downgraded its global growth forecasts for next year – the global economy is now in a “synchronised slowdown.” This is not good news for the stock market as stocks generally require economic growth and higher corporate profits to keep rising.

Corporate profits may be peaking

Another sign that we could see a crash next year is that corporate profits appear to be peaking. For example, analysts at UBS investment bank recently noted that 164 companies in the S&P 500 index now have lower earnings forecasts, up from 68 companies at the start of the year. This is in line with analysis from my colleague Roland Head, who recently said that he’s noticed that many large UK companies have had their earnings forecasts lowered recently.

Interestingly, in the US, sales by company ‘insiders’ are running at their highest rate in 20 years (i.e. since the tech bubble) according to Smart Insider, a firm that analyses director dealing. Given that insiders tend to have the best insight into the future prospects of the companies they work for, this doesn’t look good future profits.

The market is at a high level

Finally, without wanting to state the obvious, the third reason that we could potentially see a crash next year is that the stock market (particularly the US market) has had a great run over the last decade and is currently at a high level. Since its 2009 low, the S&P 500 has risen over 350%.

Given that many investors are a little bit on edge at present due to the high level of economic uncertainty associated with US/China trade wars and Brexit, I don’t think it would take much for a lot of people to hit the ‘sell’ button.

Of course, you could argue that UK stocks are not so expensive right now. And that’s true. But it’s also very much irrelevant, in my view. If the US stock market tanks, you can be sure the UK market will follow it down.

So, there are three reasons why we could potentially see a stock market crash in the near future. Tune in tomorrow for the opposite view!

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.