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Updated 04:54 27/02/20

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Is it time for a U.S stock market crash?


Adam Pike, News Editor
19 Aug 2016, 10:25 a.m.

The last time the Dow Jones Industrial, NASDAQ, and S&P simultaneously closed at record highs, each market fell spectacularly for two and a half years. During the 2008 meltdown the S&P fell -40.33% the NASDAQ -75.01% and the Dow Jones -25.04%.

A number of high profile traders and economists are predicting that we are now on the cusp of another stock market panic. Billionaire investor Carl Icahn recently declared that retail clients are walking into the same trap as they did in 2007, and well known economist Andrew Smithers believes U.S. stocks are overvalued by as much as 80%. So with economic growth so sluggish around the globe, what is driving share prices in the U.S. to record highs?

Record low interest rates and endless rounds of quantitative easing have crushed yields on government bonds to historic levels, pushing investors into equities in a desperate search for yield. Stock buybacks where a company repurchases its shares directly from the market are also pushing stocks to record highs. Stock markets are cynical in nature and sharp corrections are both normal and necessary.

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