How Spot Next Stock Market Crash

A stock market crash refers to a sudden reduction in share prices. According to Alan Safahi, the San Francisco-based founder of 6 Startups and renowned entrepreneurs, a stock market crash usually occurs within a day. Most often, it is due to economic disaster, natural calamity, investor panic, or speculation.

All investors must act proactively and prepare for such crashes. Safahi says investors can deal with stock market crashes if they diversify their portfolios and shift to bonds or CDs. The question is: how to spot the next stock market crash. In today’s article, we will give you some tips based on Safahi’s research and experience as a stock market expert. Read on!

The Inverted Yield Curve

In everyday situations, short-term interest rates are lower than long-term rates. The interest rate primarily depends on the risk factor. For instance, you will have lower interest rates when you have long-term security because it ties up your investment or money for a long time. On the other hand, interest rates are higher for short-term securities.

The inverted yield curve occurs when there is an alternative situation. For example, when investors start accepting lower returns on long-term securities, it is a warning sign that the stock market will crash. Investors accept lower interest rates on long-term debt securities because they expect lower investment returns in the future.

Declining Credit Quality

Alan Safahi has done a tremendous amount of research on stock market crash prediction. San Francisco’s renowned entrepreneur states that credit is the most crucial aspect of the US economy. Safahi says the entire country’s economy is based on credit, including businesses of all sizes.

The expansion of credit is directly proportional to economic growth and prosperity. However, it is crucial to maintain credit performance. For example, when the credit remains steady, the stock market will flourish. On the other hand, a decline in loan performance is a serious sign of the stock market crash.

Widespread Complacency

Complacency is another sign of a stock market crash. According to Safahi, widespread complacency is primarily based on investors’ perceptions about the financial market. It is all about the market sentiment. A rising market means investors have positive and consistent sentiment. In contrast, negative sentiments are usually due to the declining market.

Various factors influence or affect the sentiment. Alan Safahi highlights that these aspects are political developments, geopolitical conditions, socioeconomic indicators, and Federal Reserve’s pronouncements.

For instance, inflation in the future is most often due to fluctuating trends in the Consumer Price Index (CPI), leading to elevated interest rates. Bear in mind that increasing interest rates can significantly affect the stock market and lead to its crash. Make sure you watch out for this sign.

Final Words

The points mentioned above are essential, and investors must consider them to spot the next stock market crash. Higher interest rates are also due to rising government deficits. Safahi says because the U.S government is the largest debt borrower, the deficit can lead to higher interest rates.

On the other hand, the deteriorating economy is the leading cause of rising unemployment rates in the US. It negatively affects the corporate profits and stock prices, causing significant turmoil in the market, leading to its crash.

Originally Posted: https://safahi.com/how-to-spot-the-next-stock-market-crash-4cfc16aeb289