7 Signs The Stock Market Is Going To Crash
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The next stock market crash will mean different things for different people. For some, it will cause crippling declines in their retirement accounts while for others it will present an opportunity to acquire all of their favorite stocks at basement bargain prices. Regardless of how the next stock market crash will impact your own personal financial situation, knowing when one could happen next is key to preparing accordingly. As such, let’s look at 7 signs the stock market is going to crash so that you can fully capitalize the next time the market takes a dive!
Sign #1: Dovish Monetary Policy
When we think of doves, we often think of birds who have forever been linked with sentiments of love and affection. Well, I hate to burst your love bubble but in the context of monetary policy and stock market crashes, doves may be synonymous with decline.
When the monetary policy in the country is dovish, it basically means that policymakers are aiming to keep interest rates low. Now, what usually happens when interest rates are low? If you’ve been paying attention over the last couple of years you’ve probably seen droves of people borrowing money because the second-best thing to free money is cheap money and right now there’s lots of it. Now, this may not seem like a bad thing but as you know, nothing good lasts forever and over time, this supply of cheap cash will disappear and this will push the market towards a crash. Why is that? Let me explain.
You see, right now, there are a lot of investors who are using borrowed money to prop up their investing positions. However, as borrowing becomes more and more expensive as interest rates rise, less and less people will continue to borrow meaning they will have less access to capital and as such less stocks will end up being purchased. This contraction in purchasing or lower demand, will naturally cause stock prices to fall and if this change in price prompts further sell offs then you get into a situation where the market can take a turn for the worst real quick.
Therefore, as periods of low-interest prevail, you should suspect that the tides will eventually turn and that a market crash is very likely to take place.
