Is another market crash and global recession coming in 2019?
Around a decade ago the global share market was nearly at the lowest point of the GFC crash. History tells us that a recession or significant share market crash happens roughly every 10 years. Therefore, could you say we're facing an imminent crash this year?
I don't think it's as simple as that. Just because the Earth has gone around the Sun ten times doesn't mean we're due for a recession. The reason for each recession is different – there isn't an economic rule that says a crash has to happen at the end of each decade.
But, nonetheless, a crash does get closer each day. That also means the next market boom is also getting closer of course.
Most analysts would agree the next crash isn't going to be caused by major global banking giants like Commonwealth Bank of Australia (ASX: CBA) or its international peers. The banks are actually in a pretty good state compared to the pre-GFC, they are a lot less leveraged.
There could be three major turning points this year that cause a global recession:
- Rising US interest rates are increasing the cost of debt for almost every borrower in the world, particularly ones that have borrowed in US dollars. Rising rates are hurting asset prices. A key negative could be that the US housing market may have peaked in 2018, it's an important economic driver which deteriorate and hurt the US economy.
- The trade war isn't good for anyone, particularly the world's two largest economies. Trade is not a zero sum activity, President Trump may be trying to help the US economy with his actions, but it may do more harm than good. There are many potential consequences of this trade war, with Australia being one of the countries that could suffer indirectly.
- Quantitative tightening is the term used to describe central banks winding back their bond-buying programs. It's hard to say exactly what the fallout of this will be, but pessimist analysts believe it could lead to a lot more volatility (mainly declines).
Foolish takeaway
A recession is possible this year and quite likely by 2021. But, a recession could present a great opportunity to buy shares just like the GFC. Remember, the share market has done well over the long-term despite the bumps along the way.
However, at the moment I'm focusing on non-cyclical growth shares like Costa Group Holdings Ltd (ASX: CGC), Duxton Water Ltd (ASX: D2O) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
Recessions can send the share prices of financial shares down quickly, which is why I don't think bank shares like Australia and New Zealand Banking Group (ASX: ANZ) are a buy today.
