What Will Trigger the Next Stock Market Crash in 2018 Exploding Household Debt

Despite the market’s recovery over the last three trading days, huge vulnerabilities remain for stocks. Amid worries about a trade war, the S&P 500 Index (SPX) is still 7.3% below its January 26 high, as of the April 5 close. Among the bigger forces that could trigger a market crash, massive consumer debt looms particularly large in the opinion of Stephanie Pomboy, founder of economic research firm Macromavens.

As she stated in a lengthy interview with Barron’s: “There are two ways a crisis can happen. The slow and boring way is the Fed tightening continues to ratchet up and turns the screws on households and speculative-grade corporations, and the markets begin to anticipate more defaults, and reprice risk. The more spectacular way is if stocks fall because of terrorists or North Korea or whatever, which brings the whole pension crisis to the fore.”

Market volatility is reminiscent of the 1987 crash: Veteran trader Art Cashin

  • Veteran trader Art Cashin says this year’s market volatility is reminiscent of the 1987 stock market crash.
  • “It’s a good deal more volatile than almost anything else you’ve seen,” Cashin says.
  • This year’s increased volatility in equity markets is caused by fears of potential trade wars and increased scrutiny in the technology sector.

Exploding Household Debt

“Households are borrowing 90 cents for every incremental dollar they spend, up from 40 cents four years ago,” Pomboy observed, with the upshot that rising borrowing costs will create a crisis for debt-burdened consumers. Additionally, she noted a surge in consumer borrowing right after the Affordable Care Act, which was supposed to reduce health insurance costs, went into effect in 2013. (For more, see also: Why The 1929 Stock Market Crash Could Happen in 2018.)

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Art Cashin

Closing Bell Exchange: Volatility reminiscent of what we saw in ’87, says Cashin  

UBS Financial Services Managing Director Art Cashin said this year’s market volatility reminds him of the 1987 stock market crash.

“It’s a good deal more volatile than almost anything else you’ve seen,” said Cashin, who began his career at Thomson McKinnon in 1959. “It is unfortunately reminiscent of some of the volatility we saw in ’87,” he said Thursday on CNBC’s “Closing Bell.”

Cashin, now one of six executive floor governors at the New York Stock Exchange, was referring to the volatile market that began on Oct. 19, 1987, in Asia before spreading to Europe and then the United Stateslater in the day. The Dow Jones industrial average fell more than 500 points — or 22 percent — in a single day. The volatility moved across time zones the following morning, crashing markets in Australia and New Zealand.

Veteran traders were reminded of the events, dubbed “Black Monday” and “Black Tuesday,” this week.

On Wednesday, in early morning trading hours, the Dow Jones industrial average fell sharply, only to make a roaring comeback later, rallying more than 700 points and closing 230.94 points higher. The S&P 500 and Nasdaq Composite also erased early trading-day losses and closed higher.

Market movement continued on Thursday, with the Dow closing 240.92 points higher at 24,505.22. The S&P 500 and the Nasdaq were also up, with the S&P gaining 0.7 percent to close at 2,662.84 and the Nasdaq Composite up 0.5 percent to close at 7,076.55.

 

 

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