Will the US Stock Market Crash (2026)
- Samuel Morton
- Aug 20
- 5 min read
To some degree, all stock markets will experience a decline at some point within the next twelve months, but that is not the answer you're looking for. The real questions you want answering are:
When will there be another US stock market crash?
When will the US stock market become bearish?
Is now a good time to buy US stocks?
Will the US fall into recession in 2026?
Are stock prices going to draw down (fall) in 2026?
In short, a strong US equity market correction is due; i.e., stocks will sell off short-term to mid-term, and there could be panic selling, causing a market "crash".
The best approach is to be prepared and plan how to make money from it.
Why there could be a Stock Market Crash in 2026
There are many reasons (seen and unforeseen) which could cause a slide in the US and global stock markets. Some of these are detailed below:
The US Stock Market is Overvalued
The most apparent reason why US stock markets could fall is that they are so overvalued. For example, the S&P 500 is at an all-time price-to-book value high.
Price-to-book ratio is a stock market valuation metric used by investors to evaluate if a company's shares are reasonably priced. The average, using data since 1946, is a ratio of 2. The S&P 500 is currently at 5.3!
The last time the S&P's price-to-book value peaked (March 2000), the S&P 500 entered a two-year bear market, losing about 37% of its value. The Nasdaq dropped around 72% over a two-and-a-half-year period!
According to Yahoo Finance, a record number of fund managers see US stocks as too expensive. To add to this, the amount of short positions held by hedge funds is increasing.
At Current Market Valuation, all six of their market valuation tools state the US markets as overvalued. Four of them are 'Strongly Overvalued'. This includes the Buffett Indicator shown below:
Banks and Analysts are Predicting a Correction
It's not just market valuation tools and financial formulas suggesting that the US stock markets are overpriced. In recent weeks, major banks and institutions have warned of a market correction in the coming weeks and months. Two notable articles are below.
Goldman Sachs says the risk of a sudden market correction has increased: https://www.businessinsider.com/stock-market-outlook-sp500-prediction-correction-tariffs-economy-goldman-sachs-2025-8
Morgan Stanley suggests a market correction: https://uk.finance.yahoo.com/news/us-stock-market-correction-2025-062100550.html
The US Market is being held up with leverage
The amount of securities held in leveraged equity accounts is at an all-time high. This could be due to an increase in short positions and/or the rise of high-leverage brokers, such as Robinhood.
This does not indicate whether and when a stock market crash will happen, but it can act as a catalyst to create a deeper and sharper correction. Leverage accounts increase potential profits, but they also maximise potential risk. Margin and leverage enable investors or traders to lose more than their initial deposit, resulting in rapid and substantial losses, which can trigger panic selling if stock prices decline.
High Debt and Falling Cash Levels (Corporate)
Many US companies, even those with high market capitalisation, are reporting substantial levels of short-term debt. Most of these have a current ratio of below 1. Meaning they have more short-term debt than liquid assets. Despite these businesses being profitable, a small financial spanner in the works could mean companies having to borrow more, lay off staff, or default on debts. Laying off staff and defaulting on debts are recession catalysts.
There are numerous examples of popular publicly traded companies with unhealthy current ratios. A small portion of these includes:
Procter & Gamble (https://uk.finance.yahoo.com/quote/PG/balance-sheet/)
UnitedHealth Group (https://uk.finance.yahoo.com/quote/UNH/balance-sheet/)
Cisco Systems (https://uk.finance.yahoo.com/quote/CSCO/balance-sheet/)
Please don't misunderstand me. I'm not suggesting that any of the companies above will default on their debts or file for bankruptcy. If the financial landscape were to shift, a drop in sales, an increase in bad debts, etc., these companies could face severe cash flow difficulties.
From a Technical Point of View, the S&P 500 is due for a correction
The US 500 has been moving within a twenty-five-year bullish channel. Currently, price is nearing the channel resistance area, suggesting prices may pull back. pull back
How to Prepare for a decline in the US stock markets
Lower your Risk
The first thing is to lower your exposure to a potential recession. This can include closing short-term investments, holding back new investments, or reducing the size of current and new investments.
I sold off my UK and US stock holdings in mid-August 2025, as I believe a correction is coming. However, I continue to hold my long-term investments, such as my long-term equity ETFs.
Have Funds available to buy at Lower Prices
If a correction happens, buying stocks at these lower prices has historically paid off. From history, all major US stock market index corrections and crashes have reversed and swung higher.
I suggest creating a watch list now of companies that can weather a financial storm. These companies will be profitable, have plenty of cash, and have a small amount of debt.
Short-Sell the Market
I strongly discourage short-selling any stocks. However, shorting an index, such as the US500 CFD, is right up my alley. I've been shorting US500 CFD contracts since the beginning of August 2025.
IC Markets offers a positive swap rate for shorting the S&P and other indices.
Buy the Dollar
In times of financial crisis, the dollar is often king. If you're an FX trader, prepare for a stronger dollar. However, read on.
Other things to consider
The Correction is Predicted
If there is a stock market correction in 2026, bear in mind that it's been predicted by many. Investors are ready for it. This means that it is doubtful that we'll witness a 2007-like market crash. So, I'm not suggesting a global meltdown at all.
The Correction could be isolated to the US
If the US falls into recession, the world generally follows. However, there is a chance that the slide in US stocks is a US correction only. Judging by the data, other global markets are not as overvalued. Because of this, I'm unsure how much dollar strength we'll see. Cash tends to flee to the dollar during times of global crisis. However, the stock market correction could be a US "crisis" only.
The money may be made in equities by shorting the equity products and/or buying stocks at lower prices, rather than in Forex.
It might not happen
There is always a risk of recession and market corrections. Every year, there are predictions of a market crash, but most years, there isn't one. As far as we know, US stocks may become even more overvalued before the correction happens. The hardest thing is not accurately predicting whether or not stock markets will fall, but when.
Long-term investors shouldn't worry
If your pension or other long-term investments are exposed to US equities, this is not a warning to sell. Long-term investors are often advised to hold, even during the difficult times. This article is primarily for traders and short-term investors.
I could be talking much rubbish, so don't sue me
I am not a financial advisor. Nor is this article financial advice. I could be completely wrong, and stock markets may continue to climb even higher. Do your research and always consult with a financial advisor before making any financial and investment decisions.