Global financial markets have been in turmoil in recent weeks, with investor losses measuring in the trillions. But according to Noble Prize laureate Robert Shiller, this might only be the beginning of the stock market crash.
For months now, Shiller has been sounding the alarm against overexposure in overheated stock markets. (Source: CNBC, last accessed August 21, 2015.) American stock indices declined sharply for the second day after a massive sell-off in global indices, as fears of economic slowdown were stoked by evidence that China’s economy is slowing. (Source: Newsmax, last accessed August 21, 2015.)
But even with both the Dow Jones Industrial Average and the S&P 500 set to close their worst weeks of the year on Friday, Shiller warns that this could only be the beginning of the economic carnage. (Source: CNBC, last accessed, August 21, 2015.)
Larger swings may follow in the weeks and months ahead, as the psychological effects of the latest tremors in North American markets combine with the noise still emanating from China’s stock market crisis.
Indeed, Shiller highlights the danger of peripheral traders becoming over-focused on the news and contributing to the market meltdown currently under way. Investors who ordinarily don’t pay attention to the latest market news often cause panic epidemics.
But market corrections are not necessarily bad in and of themselves, says the Nobel Prize winner. He remains confident in renewed Chinese growth after their current crisis and, following a shaking-out of the deadweight, a healthy upswing in the U.S. housing market.
But economic collapse remains a distinct possibility this year, with several interrelated factors causing investors to be skittish.
Economic slowdown in China and the eurozone, crashing commodity prices, and financial volatility may come together for the stock market crash Shiller is warning us about.