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5 Global Risks That Could Hammer Stocks in 2019
5 Global Risks That Could Hammer Stocks in 2019
2019
BY MARK KOLAKOWSKI
Ian Bremmer, the founder and president of Eurasia Group, the oldest and largest
consulting firm devoted to advising investors and business leaders on the impact
of political risks around the world, shared his chief concerns with Barron's. They
include these five, which he believes are being underestimated by investors: a
major cyberattack, war with North Korea, President Trump blows up NAFTA, a
new crisis erupts in the Middle East, and China's influence grows. "Geopolitics is
very negative today," Bremmer tells Barron's. (For more, see also: 5 Market
Predictions for 2018: Vanguard's Bogle.)
1. Major Cyberattack
The securities markets are "underestimating the likelihood of a major cyberattack
against the critical infrastructure of a major country," Bremmer says. This risk is
increasing, he believes, but investors aren't pricing it in. He finds this to be a
more likely scenario than the breakout of an actual shooting war with North
Korea.
Meanwhile, technical analyst Michael Kahn sees the most overbought conditions
in the S&P 500 Index (SPX) since at least the 1970s, per his column in Barron's.
While this does not preclude further gains in 2018, sending stocks into even
more overbought territory, "it does mean that the market is susceptible to any
shocks from within or without," he warns.
Resilient Markets
Nonetheless, according to research by LPL Financial, "the stock market tends to
be resilient to crises, and the market's reaction is greatly impacted by where the
economy is in the business cycle." Thus, "the biggest declines tend to be
associated with economic weakness."
Based on their analysis of crises since 1950, and using the Dow Jones Industrial
Average (DJIA) as a barometer of the U.S. stock market, they found that the
initial reactions tended to be negative, with a median first day drop of 2.3%, but a
median 5% rise after 22 days. The big stock market declines associated with the
Arab Oil Embargo of 1973, President Nixon's resignation in 1974, the Hunt
Brothers silver crash of 1980, Iraq's invasion of Kuwait in 1990, 9/11 in 2001, and
the collapse of Lehman Brothers in 2008 all were in or around recessionary
periods, per LPL.