Is a Recession Coming? 3 Signs of a Stock Market Crash in 2019/2020

In this episode we're going to take a look at a few signs that indicate that the U.S. may be headed for a recession in 2019 or 2010, and what that means for the U.S. economy and the stock market.

A decade ago, things were looking pretty dire. In October 2009, the U.S. unemployment rate peaked at 10%, and the Federal Reserve was scrambling to incite calm in a very jittery stock market and U.S. economy.

Just seven months earlier, the Dow Jones Industrial Average, Nasdaq Composite, and broad-based S&P 500 all hit multiyear lows.

But things have rebounded in a big way over the past decade. We're currently in the midst of the longest expansionary period for the U.S. economy in recorded history. The unemployment rate is at a nearly 50-YEAR low, and the Dow, Nasdaq, and S&P 500 have all hit record highs since the Great Recession.

Unfortunately, all good things must come to an end.

Right now there are a few red flags indicating that there could be trouble ahead for the U.S. economy and the stock market.

The first red flag is the inverted yield curve. A yield curve inversion happens when longer-maturing bonds have a lower yield than shorter-maturing bonds.

Generally speaking, short-term bonds should have lower yields than long-term bonds. After all, if you're giving up your money for a longer period of time, you expect to be paid more for doing so.

But over the past couple of months, the 2-year and 10-year Treasury note swap places a few times, with the 2-year note bearing a higher yield than the 10-year -- which is known as the inversion.

Every single recession in the U.S. economy since World War II has been preceded by an inversion of the yield curve, although it's important to note that not all yield inversions have necessarily been followed by a recession.

Nevertheless, inversions don't come about unless there's some serious concern about the health of the U.S. economy.

A second concern for the economy is the current contraction in U.S. manufacturing. The Institute for Supply Management (ISM) releases its Purchasing Managers' Index (PMI) every month, which is a gauge for how the manufacturing sector is doing in the U.S., and in September, the PMI Index fell to 47.8%. That's the lowest percentage it's been since June 2009 and any reading below 50 signals a contraction.

There's little doubt that the ongoing trade war between the U.S. and China is the biggest headwind behind this confidence collapse in manufacturing.

Peter Boockvar, the chief investment officer at Bleakley Advisory Group, recently said that, "We have now tariffed our way into a manufacturing recession in the U.S. and globally."

The U.S. and China have been trying to work out a long-term trade deal for more than a year now, with tariffs being imposed on and off for the past 15 months.

There simply is no quick fix to the trade war, and the longer it lingers, the more U.S. manufacturing may suffer.

Lastly, history would suggest that the stock market and U.S. economy are primed for a recession.

Despite more than 10 years of expansion, there's a good probability that a recession will happen sooner rather than later.

The U.S. has had 14 recessions over the past 90 years, or about one every 6.5 years. Even though the U.S. economy doesn't stick to averages, this long-term data is pretty clear that recessions are a natural and unavoidable part of the economic cycle.

We also know that stock market corrections are perfectly normal. In fact, the S&P 500 has had 37 corrections of at least 10% since 1950.

The bottom line is that no matter what the U.S. economy has historically thrown at the Dow, Nasdaq, or S&P 500, they've always bounced back stronger than they were before. That's why long-term investors continue to be rewarded for their patience.

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[oscarjiron]

This recession is most likely the result of an external factor. For the first time in decades, the United States is losing its clout as a federal reserve currency. They don't have any more economies to use to control inflation, and less money is being spent on stock and oil trading than in the past. They all lend support to the idea that a new multilateral world order is in the works.

[robynmasters]

Everyone talks about the unemployment rate being at an all time low but many people have to work three jobs just to get by. I remember when a single job was more than enough to get by with a little extra for entertainment.

[kun_fu_taco]

Who else thinks the Corona Virus 19 was predicted before uploading this?

[erickaholman]

I believe that we are now in a recession which may just deepen. Some of the signs are the ongoing trade war between USA and China. Then as a consumer you only need to go shopping and see how the prices of everything have gone up, then take a walk around home depot, lowes and stores and the sales are not good. Also, home depot and lowes have been cutting staff and leaving customers, the only few left without true assistance. I believe we are in a recession right now and it will only deepen, I hope I am wrong!!!

[rocktcatU]

Another sign is that coke prices have been collapsing for the past months now while meth is skyrocketing.

[johnellis]

The US has approaching 23 trillion of unpayable debt and now injecting 60 billion a month into the economy.
That is 60 billion out of nowhere and backed by nothing. I cannot believe what is happening around the entire world. We have not come out of the 2007/8 crisis and I can only see deterioration in Europe where I reside.

[MegaHairyass]

I’m in California, Construction has came to a hard abrupt stop, talked to home advisor on leads, they say it’s very strange leads went fro 570 per month to 8 leads in just 3 months, a buddy of mine works at a trucking company says the place went dead all of a sudden, another buddy has a autobody shop buffing and wrapping cars says wtf is going on, all of a sudden no shits about to hit the fan again.

[kindnessconnection]

Obviously you are in the upper Financial brackets. You're worried about your stock bonds and commodities when the real world is worried about keeping their jobs and making sure their families are safe.

[noseefood]

unemployment rate is propped up by part time, low wage and gig economy.

[mzoesp]

If we enter another recession, will it affect housing prices like the 2008 recession? Are property values going to plummet again?

[rorober.]

Thanks for details. Predictions have been floating for several years. Maybe recession not as bad as 2008/09 but coming

[AmusementForce]

There is one thing I know for sure: Nobody knows shit about what is going to happen. Nobody.

[dirtyd]

Dude thanks for keeping it short and to the point, I can not stand a 30 minute video to say 3 minutes of SHIT !!!! thanks again 👍

[NiMi]

My biggest worry is not knowing to what extent US elections will play on the volatility during a bear market; will it be a slow-down or crash, who knows!

I think the fact that most people are taking on a ton of debt and have to work multiple jobs to make ends meet will inspire an avalanche of problems next year

[larryariesildefonso]

How do you prepare for the recession instead of warning

[patricklee]

No, we are headed for the greatest depression in recorded history.

[GenExDividendInvestor]

Too much talk of recession makes the contrarian in me wonder if there will be no recession in 2020? Either way, invest in quality companies and in the long run you should be fine.

[HepCatJack]

A resession is when the GDP drops in two successive quarters. It is not the same as a stock market crash.

[craigbuckley]

To be honest I think it makes stock picking easier when the market goes down because some companies still grow even as the stock tanks like Google kept growing at 30% the stock went down 50% in the great recession

[RetireCertain]

It's been a long time so it seems like it can't be that far off, although it seems we may be in a Goldilocks economy, at least for now. Good info. Thanks Motley Fool.