Experts reveal the eight signs a stock market crash is about to start – and what

A stock market crash is on the way – growing numbers of experts are agreed on that. What they don’t know is when it will hit, as there is plenty going on in the world that has the potential to trigger havoc on the markets.

Concerns about the Trump administration and US government shutdown are causing jitters, and closer to home there are worries about this month’s Budget.

Tensions persist in the Middle East, stock markets – and AI company shares in particular – are hitting record highs, and a potential French government failure is in the offing.

Meanwhile, investors are still grappling with sticky inflation, interest rate uncertainty and gloomy economic forecasts.

Timing the market is nigh on impossible, but there are warning signals that experts keep an eye on which could indicate the start of a market meltdown. While no single indicator is enough to sound the alarm for a sell-off, together they can help build a picture of the state of the market.

The yield curve

This refers to the shape of the line on a chart showing the rate of interest paid (y axis) on a bond versus the time until the bond matures (x axis). Typically, the longer you are willing to hold a bond, the more you get paid.

That is because it is usually riskier to hold a bond for longer because you don’t know what will happen in the meantime that could make your yield seem less attractive.

For example, if you take out a ten-year bond that pays 4.4 per cent, and then interest rates soar, the value of the fixed income you are receiving becomes less valuable because you would be able to get a better rate elsewhere.

Laith Khalaf, from investment platform AJ Bell, says gilt yields rising fast could be a sign of a looming crash

David Roberts, head of fixed income at Nedgroup Investments, says rising unemployment puts stress on the labour market, weakening the economy

In normal times the yield should be lower for short duration bonds, and rise for longer-term ones.

The line on a graph demonstrating this relationship should go diagonally upwards from left to right.

When the yield curve inverts, investors are paid more for holding short-term bonds and the usual line on the graph flips so that it starts higher and falls as it moves from left to right. This phenomenon is generally considered a reliable indicator of a recession as it shows that markets expect central banks to cut interest rates – something they usually do to stimulate economic growth in a downturn.

Every time over the past 50 years that 30-year US bonds have paid 1 percentage point more than five-year bonds, a recession has followed, explains David Roberts, head of fixed income at Nedgroup Investments.

This has been the case for the past few months, he notes. But that does not mean there is cause for panic. The chance of a US recession in the immediate future still looks unlikely as the economy is proving robust, unemployment is very low and the US central bank, the Federal Reserve, is cutting interest rates.

Currently the UK yield curve is normal.

Two-year UK Government bonds – called gilts – pay 3.77 per cent, ten-year gilts 4.4 per cent, and 30-year gilts 5.17 per cent. But watch out if this changes.

Corinne Lord, investment specialist at wealth manager St James’s Place, says an inverted yield curve is not as failsafe an indicator as it used to be, but ‘it still provides a useful guide to investor expectations’.

Employment rates

Signs of an impending stock market crash are growing – but when it might happen is harder to predict

Corinne Lord, investment specialist at wealth manager St James’s Place, says: ‘There is evidence of a stagnant jobs market in the UK and US. It warrants some caution’

When companies are struggling, they make redundancies. A rising unemployment rate is a common sign that a bubble has burst and a country is in recession.

‘When jobless claims start rising, it often points to labour market stress and lower demand from consumers,’ says Roberts.

In September there were 1.69 million jobless benefits claimants in the UK, a rise of 25,800 from the month before.

However, the figures are harder to read than in past recessions, because the data has been skewed since the pandemic.

Today, the number of jobless benefits claimants is 73,300 lower than a year ago, but 500,000 higher than before Covid hit.

Lord says: ‘There is evidence of a stagnant jobs market in the UK and US. It warrants some caution.’

The ‘PMIs’

Purchasing Managers Indexes (PMIs) are monthly surveys of supply managers across different industries, which analyse new orders, inventories, production, deliveries and employment.

The data gives an insight into how an economy is growing.

The index ranges from between zero and 100, with above 50 suggesting that conditions are expanding – companies are growing…