According to recent reports by reputable experts, it will only take a couple of months for the stock market to plunge by at least 50% or more. An eminent hedge fund manager, Mark Spitznagel says that we shouldn’t be much surprised about the anticipated crash in the US stock market. In fact, he adds that we should expect it. Unfortunately, he is not alone who believes in such a statement. Swiss advisor Marc Faber also believes that we are now going through a gigantic financial asset bubble that could burst anytime. President Barack Obama’s government policies like the low rate policies are being squarely blamed for the changes in the US stock market. What are the Main Street investors going to do with such a looming inevitable crash? Have a look at the 3 signs that show that the current stock market is heated enough.
- The unwanted dependence on the Fed stimulus: The financial markets are all hooked on easy money and this is the reason why the investors and the markets have stopped considering the real geopolitical and economic vulnerabilities. We are aware of the fact that the central banks and the Federal Reserve are always given enough credit for supporting the financial system post-crisis by maintaining low interest rates. In fact, it is now tough to avoid the sense of disconnect between the prevalent economic developments and the buoyancy of the markets.
- Stocks have become too dear to own: According to market valuation, the stocks are currently trading at soaring levels. As per studies by the Shiller PE Ratio, that tracks inflation-adjusted earnings throughout the last decade, S&P 500 is trading over 26 times earnings. The price-to-earnings ratio rose above 25 during 1901 for the first time and then again it rose in 1929. It again came back to 25 in 2003 and stayed at that level before the Great Recession. According to eminent investors, once it reaches above 26, the returns on the US stock market will possibly become negative for the next 5 years.
- Stock markets are outshining actual growth: As compared to the overall health of the American economy, stocks are priced way above. In fact, some investors are of the opinion that the only time when the total valuation of the stock market relative to the US GDP was higher was during the peak time of the tech bubble. They all are of the opinion that chances of a correction are gradually rising.
Last but not the least; the corporate leaders are no more optimistic about the future of the stock market. The Chief Financial Officers in America are all lowering their earnings for the year as they’re feeling immensely pessimistic about the stock market returns. Pessimism is holding steady throughout 2014 and hence the investors are being warned about the lurking danger.