World Economy

Possibility of US Stock Markets Crashing in 2017

Higher interest rates will cost American consumers more.Higher interest rates will cost American consumers more.
In 2015, 44% of all revenue at S&P 500 companies was earned outside of the US

Weak corporate earnings, dismal growth for the US economy, and a global economy in trouble are three reasons why the US stock market crash in 2017 is a strong possibility. The S&P 500 could easily fall 33% from its current level.

While not well known, earnings of the S&P 500 companies actually contracted in five of the last seven quarters. The stock market is at record highs, but corporate America's income statements are weak. Take out the stock buyback programs that public companies have been using to boost per-share earnings, and corporate America has a problem: lack of profit growth, Michael Lombardi, a media analyst, wrote for

In 2015, 44% of all revenue at S&P 500 companies was earned outside of the United States. The US dollar has been on a tear for the past several months now. And this will put further pressure on corporate earnings, as a rising US dollar is negative for companies with sales abroad.

The US Federal Reserve is adamant about raising interest rates this year...and it should be. After all, savers have been punished for too long. "But, on the other side of the coin, our economy is too weak to absorb another interest rate hike (the last one was in December 2015).

Consumers make up two-thirds of US gross domestic product. Higher interest rates will cost American consumers more. And they won't make up the cost of their higher interest expenses on their higher wages, because wage growth has been stagnant. On the contrary, consumers will cut back on spending to endure higher interest payments, and this is negative for the US economy.

Crisis Escalate

The US economy had a solid bounce-back after the financial crisis, but since 2011 the economy has stalled. Yet, the stock market has skyrocketed to all-time highs. "And it's not just the US economy that is fragile. The global economy is in even worse shape than our own economy," Lonbardi said.

The eurozone crisis is far from over. Britain has voted to leave the eurozone, and Italy's banks are on life support. "I get a chance to go to Europe several times a year. When I talk to the locals, all I hear is how they are struggling. And the economic data out of Europe confirm this. The unemployment rate for youth is staggering, surpassing 40% in countries like Spain."

And other major hubs in the global economy remain fragile. China is reporting its poorest economic performance in years, while Japan is still moving in and out of recession. Other economies like Australia, Canada, and England are reporting anemic growth.

"As the global economy slows further, the US economy will be impacted. It would be naive to think that stocks will go unhurt. And it wouldn't be shocking if this time around we see a stock market crash in 2017 due to external factors," he concluded.

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