Will There Be a Stock Market Correction in 2019?

4 minutes

So with the amazing loan rates most consumers are now enjoying and the longest bull market in the history of the United States, most people have been tuning into fire and brimstone economists suggesting that a financial collapse is only a matter of time. People are citing that volatility in the stock market as a good indication that we are overdue for a correction, and while people like Warren Buffett are some of the most pronounced voices on the coming correction, most people really want to know what the correction is, why the market is so volatile, and what the repercussions would be in the case of a correction.

While it’s highly improbable that anyone truly has a crystal ball to foresee the coming economic landscape, what we do have is a litany of data from life long economic experts to support assumptions and reasoning made in today’s post. So if you’re new to economics, or just a curious type concerned with the market, enjoy the information Financer.com has to share today!

Why is There Such Volatility in the 2018-2019 Stock Market and What Does it All Mean?

This is a good question because of how revealing it is to our current “vital signs” as an economic whole. But to fully grasp the “volatility” one must also understand the fact pattern/data pattern that has emerged from our previous 20 years or so to get a grasp on what deviations of fluctuations we’ve born in the past.

Especially in early 2018, the United States had historic daily corrections that closed out the day to be over 1,000 points lost.  In fact, nearly half of the 20 largest losses that have come to our economy in a single day occurred during 2018, (as of June 2019), which is quite alarming in general, but when looked at critically isn’t anywhere near the volatility our economy has shouldered in the last 20 years.

In fact, according to a study conducted at the Schwab Center for Financial Research, the S&P 500 had 2017 as number 20, or dead last, on the list of most volatile years in the last 20 years, and 2018 actually came in as number 10.

So what is actually at the heart of this excitement surrounding the eventual correction in the marketplace?

The excitement has actually been stirred over how wonderful our economy has been in the last 5-6 years or so, it’s like a party that investors don’t want to end.  Investors whom stayed fully invested for 3 years following the market bottom saw a total return of 83% according to Morningstar. (01/1970-12/2017).

So in layman’s terms, there’s just so much money to be made on the market and with loan rates at the lowest they’ve ever been for this country, the United States is having a golden economic window of prosperity that some think may end up fueling large gaps between the middle and lower classes to the wealthy, another concern we will talk about some other time.

So why the volatility then? It’s actually quite simple, the larger the market grows in the United States, the larger swings the economy will naturally take. It really can be boiled down to a simple example, that a toddler will take smaller steps than a grown adult; there are just more grounds to cover with a larger economy.

Should the Growing Market be Cause of Any Panic?

You’re not alone in wondering about this. A large market brings back memories of 2008 where Warren Buffett’s quote seemed to make the most sense to even the very most financially undisciplined/undereducated; “when the tide rolls out, you’ll get to see who was swimming without trunks on.” A countless amount of good people were harmed and are actually still being harmed by what is now considered extremely predatory lending, something the formation of the Consumer Financial Protection Bureau mission is to litigate, however economists insist that the economic collapse of 2008 (topping the list for worst years in economic history for the United States when compared to the damage it did on effectiveness of investors on the market) will not “be possible” to happen again.

The reason why the disaster of 2008 topped the list as worst times in the last 20 years of this country, and debatably American history, is because the percentage change on the economy that it had, with some days closing out as being as high as 8% less capital in the market, compared to the 1,175 point drop (largest in American history) in 2018 that caused our economy to dip 4.6%. So based off these numbers, you can actually deduce that the market’s volatility is not just a measure of points dropped but a reflection of our possibilities in our nations GDP.

This brings back the question; it’s great that our GDP has been improving in relation to our spending habits but what does the future hold for our economy moving ahead into late 2019-2020.

What Is In Store for Us in Late 2019/2020?

The linchpin of this issue is, is our market sustainable? The Federal Reserve predicts that our economy will start slowing in the latter half of 2019, meaning a 2.9% GDP rate. However, in 2020 the Federal Reserve also estimates that the market may slow down to 1.8% growth rate, all the while the Federal Debt will increase.

What some think this means for everyday American citizens is that in order to correct the national debt with a slowed down economy is spending cuts. Meaning that government contracts, general contractors, teachers, etc may be affected negatively once again. You may already be noticing the markets feelings about this because of an increase in temp jobs, and major delaying of large investment spending (signs that investing companies are looking to make acquisitions when the market is at a low).

Economists also speculate higher fuel costs, meaning we may near that $4 a gallon price we saw in some areas 2015-2016. The good news is general inflation should remain subdued due to the intertwining of our economy with other economies, so food, housing growth, and other commodities should remain just about where they are today.

The only issues you have to worry about eating into your retirement plan would have to do with concerns focused around natural disasters, very slowly escalating health care costs (something we’re all used to by now), and student debt. In general it should be business as usual with several years of slow economic growth; however, if you are in the affected brackets of a government employee, general contractor, teacher, etc, you may want to start considering consolidating bills now if you have the resources to.

Financer.com is here to be your friend in this process every step of the way!

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