2019 is almost over, but the next two months could be an extremely stressful time for investors around the world.
Throughout the year, risks to the global economy have been building, but so far, markets have taken these developments in their stride.
A lack of any major catalysts to spark a bigger sell-off seems to be why the market reaction has been so subdued.
Even though issues like Brexit, the US-China trade war, unrest in Hong Kong and the attacks on oil facilities in the Gulf have shaken investor confidence, none of these events has been so bad so far as to start a significant sell-off.
However, that could change in the next two months.
Two key events
There are two events that I believe could cause the FTSE 100 to crash in the next two months.
As more than 70% of the index’s profits are produced outside of the UK, the FTSE 100 tends to be more of an international stocks index. So its performance tends to be influenced more by global developments than those at home.
The first big event that could influence the market in the near term is the impeachment inquiry against Donald Trump, initiated on September 24.
If the president of the United States is impeached, it is unclear at this point which Republican candidate will replace him, leaving the presidential race open to the Democrats.
Wall Street analysts are predicting substantial losses for investors if any of the primary Democrat candidates end up in the White House because they are all promising big giveaways and tax hikes to fund them.
If Wall Street stumbles, the FTSE 100 and other major indexes around the world also usually suffer.
The second significant event is the UK general election which is currently slated to take place on December 12.
Brexit uncertainty is not only hurting the UK economy, but European nations are suffering as well, and this is having a knock-on effect around the world.
The combination of Trump’s global trade war and industry worries over Brexit has tipped Germany into its first recession in six years.
All eyes are now on the UK. If the election throws up a mixed result, investors will be facing yet more uncertainty. If Labour wins a majority, the situation could become even worse. The party is planning to crack down on the rich and global tax havens such as Jersey and Guernsey. This will almost certainly result in massive capital flows out of the UK, which could destabilise the global financial system.
In the worst-case scenario, both of the events above could set off another global financial crisis, which would be devastating for investors.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.