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3 reasons we could see a stock market crash in 2020

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.

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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!

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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.