It is still unclear if the economy is set to crash in 2019 or if stock markets will make new highs. Many speculators are leaning toward neither, but are expecting a path to a possible recession in the near future.
Plenty of people are asking about the chance of a crash, which can be interpreted as a pretty severe recession, like 2008-09. The primary trigger of a full-blown crash would be a financial crisis when many companies, consumers and other entities have borrowed short to fund long-term assets which start looking dodgy. Which don’t seem to be in the cards at the moment.
The economy is in decent shape at the moment but there are many stocks that are simply far too overvalued.
Household finances are improving. Over the last four quarters, their real estate equity is up 10.0%, financial assets up 8.0%, debt up only 3.4%, for a gain in net worth of 8.2%, based on Federal Reserve data.
America’s banks hold more capital relative to assets than before the last recession. They have also undergone stress tests to determine how they would fare in a recession. Even though the exercise is imperfect, it goes a long way toward helping a bank survive.
Most of the time, stock prices are a response to changes in the economy, though occasionally stock prices can influence the overall economy. The market is not so overblown now that it will drag an other-wise healthy economy into a crash, though it would certainly fall if some other cause triggered a recession.
Another possible trigger of a recession in 2019 or 2020 is a collapse in international commerce due to President Trump’s trade wars. That’s possible if negotiations go south, ruined by competing egos and economic ignorance. So yes, it’s possible. Most of the risk is related to China. Cutting our exports to China would be a hit to the economy, but not catastrophic. Reducing our imports from China would raise consumer prices and disrupt supply chains for American manufacturers, so trade conflict is certainly a bad for us.