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The Italian Election Is a Potential “Black Swan” That Could Trigger a Stock Market Crash in 2018

There is a stock market risk in 2018 that comes from afar: Italy. Italy has been struggling to improve its economy. In 2017, there were favorable signs of recovery. Growth (i.e. GDP) reached 1.2%, a figure not seen since before the 2008 financial crisis. The results of the Italian election and the markets’ highly probable retraction—unless the center-left parties can pull off a miracle—constitute one of the potential “black swans” of 2018.

While the Dow Jones hesitates to return to its record highs set in January, many investors are ignoring one specific risk in 2018. Concerns over the U.S. dollar, interest rates, and oil prices have been explored. Analysts and investors have debated the problems related to Trump’s tax reforms, like inflation, at length. And then, there’s the impact of Bitcoin and other cryptocurrencies on so-called safe-haven assets like gold and silver. In 2018, the financial market—and the economy, in fact—are more difficult to read than ever.

There’s simply too much “choice.” But more choice means more risk; the simple risk of making the wrong choice. But most Americans limit their understanding of risk to what they know. They pay little attention to what’s happening beyond their shores, which could impact the markets in general and, of course, their savings.

The so-called Brexit—the U.K.’s decision to leave the European Union—was one such case. It had a minimal effect on the markets. But, for the record, the U.K. is still in the EU now, thus the effects of this departure remain speculative.

The Hidden Source of Market Turmoil in 2018

There’s another risk brewing in 2018, however, which could have both a more immediate and more longstanding effect. Bluntly, it’s not going to be a favorable effect. The source of this hidden trouble is Italy. Specifically, an Italian election. Now, why would that be an issue?