With the current stock market at an all high, one of the biggest question on everyone’s mind is, “Will there be a recession in 2020?”
The stock market keeps on hitting new record highs. It has literally never been higher than it is now, but of course, it won’t stay that way forever.
The market runs in cycles. It goes up, it goes down.
We can’t tell EXACTLY when the market will hit bottom again, but by looking at market cycles, we can get a rough idea of whether for not a recession with happening in 2020.
How Recessions and Stocks Market Cycles Correlate
Approximately every 20 years, the market drops dramatically, and every 40 years or so, it tumbles even more. According to the charts, it looks like we may be due for one of the bigger drops in 2020.
But we have to look beyond the charts. While the cycles give us warning signs of potential crashes, predicting the market is not an exact science. The economy reacts to more than just the market cycles. You need to have the perfect storm — many events and economic conditions coming together — for a recession to happen. That could happen in the near future — or it might not.
The important thing is to be prepared for whatever may happen in 2020. Prepare yourself for a recession — but also be ready for a year without one. Either way, keep on saving for retirement and keep on making good investment decisions. Rule #1 investors know how to take advantage of all kinds of economic conditions, including stock market crashes.
Let’s look at a couple of scenarios — one where a recession might happen in 2020, and one where that’s unlikely:
Top 2020 Recession Indicators
So, what would have to happen to cause a recession in 2020?
Whatever way you slice it, 2020 will definitely be an eventful year. We’re going to have the U.S. presidential elections. International tension and the trade war with China are likely to continue, and that could undermine people’s confidence in the economy, making Americans cut back on spending.
All of these things could have a big influence on the market and drive us into a recession.
Lots of companies are overvalued. When companies are priced too high relative to their actual worth, the price will almost always come back down sooner or later. We’ve seen stock market bubbles burst before. It could happen again.
Many companies have also taken on debt because interest rates were low. If interest rates go back up, or if trade wars push revenues down, these companies are vulnerable to going bankrupt. That could set off a ripple effect of bad news as people lose their jobs and don’t have money to spend.
Meanwhile, politicians may not be able to agree on an effective fiscal policy that might help pull us out of a looming recession before it’s too late.
What is the Probability of a Recession in 2020?
Although this scenario sounds dire, it doesn’t have to happen.
The market won’t crash unless many investors pull out their investments. But where else would they put their money? The market remains the best investment opportunity at this time.
When we use the events of the past to predict the future of the market, we have to assume that the market will keep on working the same way. But that’s no longer true about the stock market.
Tech giants dominate the market like never before. We’ve never had a market like this in the past, and the old rules don’t apply, at least not in the same way.
So if certain conditions generally caused recessions in the past, that may no longer be the case now.
Is a Recession Coming in 2020?
We don’t really know what’s going to happen to the market as a whole.
Whatever happens, you can still make great investment decisions. Trying to predict the market is like trying to read tea leaves. There is a substantial chance that we could have a recession in 2020, but there is also a substantial chance that we won’t.
Either way, if you understand the principles of Rule #1 investing, you will find opportunities to increase your long-term wealth. Rule #1 investors do not fear market crashes. They know that downturns provide the best buying opportunities.
When you know how to look at the market objectively, you’ll have an advantage over other investors if there is a recession or a market crash. You’ll be able to keep a cool head while others are panicking.
Be prepared for whatever 2020 brings by doing the research to find the best companies. Then you’ll be ready when your chosen companies go on sale. Preparation plus opportunity equals success.
Now I’d love to hear from you. Do you think the market will crash in 2020?
Leave a comment below with your answer, and I’ll be sure to follow up with you.
Phil Town is an investment advisor, hedge fund manager, 3x NY Times Best-Selling Author, ex-Grand Canyon river guide, and former Lieutenant in the US Army Special Forces. He and his wife, Melissa, share a passion for horses, polo, and eventing. Phil’s goal is to help you learn how to invest and achieve financial independence.