2016 Stock Market Crash: How Low Will the S&P Drop

2016 Stock Market Crash2016 Stock Market Crash: Global markets have tanked so far this year, and the S&P 500 has already fallen 10.4% from its May 2015 high.

Investors are now wondering how far the S&P 500 could drop during a 2016 stock market crash, so we turned to Money Morning Global Credit Strategist Michael Lewitt for his prediction. After reviewing market data, he has revised his original S&P 500 prediction for Money Morning readers.

But first, here's why investors are panicking about a possible 2016 stock market crash...

Fears of worldwide slowdown, plunging oil prices, and a troubled junk bond market have all caused increased selling pressure in the markets. Additionally, fading confidence in global central banks' ability to step in and prop up markets has also been a contributing factor.

The Dow, S&P 500, and the Nasdaq are down 7.66%, 7.15%, and 9.02%, respectively, just three weeks into 2016.

According to Lewitt, it's easy to see how this market turmoil developed in the first place.

"China is a house of cards whose debt-engorged economy hit a wall in mid-2014 after seeing its total debt grow from $7 trillion in 2007 to $28 trillion (it is now probably over $30 trillion)," he said. "This then caused global commodities markets, which were inflated by the Chinese debt explosion, to collapse."

"The last piece of the puzzle was the end of the Federal Reserve's quantitative easing (QE) program in October 2014 and the beginning of its effort to raise interest rates in 2015, though this didn't occur until last December and is more likely than not to be reversed in 2016 if markets continue to sell off and the U.S. economy continues to weaken."

And even though the markets have bounced back in the last two days, Lewitt says we likely haven't seen the bottom yet.

Here's his bold prediction for where the S&P 500 is headed in 2016...

Is a 2016 Stock Market Crash Coming?

According to Lewitt, China is the biggest factor that will pull down the S&P 500 if we see a 2016 stock market crash.

"China is in serious trouble with little sign that conditions will improve anytime soon," Lewitt said. "The question is whether China and its commodities bubble will take down the world like the United States and its housing bubble did in 2008. Nobody can answer that question with certainty, but we do know that there is more debt and more geopolitical instability today."

"On the flip side, U.S. banks are much better capitalized and in a much better position to handle a global sell-off," he continued. "For the moment, the most likely scenario is that markets continue to sell off but that we experience something less severe than 2008. But that could still mean large losses for investors."

Lewitt has lowered his 2016 S&P 500 forecast to 1,650 to 1,750. That's down from his initial prediction of 1,875 to 1,900.

Editor's Note: As we navigate an increasingly volatile market in 2016, a major credit crisis may be just around the corner. This year, your most valuable asset may be Michael Lewitt's free Sure Money service. In Sure Money, Michael helps you see what's going up, what's going down, and how to profit. Sign up now by clicking here, and you'll get instant access to all of Michael's investing tips, recommendations, and specific instructions, including his exclusive "Super Crash Report."

Stay informed on what's going on in the markets by following us on Twitter @moneymorning or liking us on Facebook.

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