Stock investors still enjoying a U.S. bull market that has more than tripled from financial crisis lows should brace themselves over the coming months for market turmoil they haven’t seen in recent years. As much as 20% of value could be wiped from that market over the next two months as stocks get dragged down by escalating global trade tensions, the collapse of overly optimistic earnings forecasts, a sharp downshift in economic growth, and political turmoil, says Vincent Deluard, director of global macro strategy at INTL FCStone, according to a detailed story in Business Insider.

What It Means for Investors

The Trump administration’s announcement last week to impose 10% tariffs on $300 billion worth of additional Chinese goods and China’s retaliatory devaluation of the yuan and request of state-owned enterprises to halt spending on U.S. agricultural products are a clear indication that tensions between the world’s two largest economies are likely to continue to weigh on global economic growth in the near term.

A long and protracted trade war looks increasingly likely, and that is going to upset overly optimistic corporate earnings forecasts, in Deluard’s opinion. “Earnings are expected to shrink by 3.5% next quarter, before an improbable rebound to 3.9% in the fourth quarter,” he said. “Bar a rapid resolution of the China-U.S. trade dispute (which remains unlikely in my opinion), it is hard to see why the year-long decline in U.S. earnings would revert this fall.”

Strategists at Morgan Stanley are also bearish on earnings, forecasting a 1.2% year-over-year decline in second quarter earnings for the S&P. “Despite 2Q earnings ‘beating’ their lowered bar, the outlook is not improving,” the strategists wrote in a recent U.S. Equity Strategy report. “[S]ince June 30, S&P earnings estimates have been falling across most sectors and in aggregate are down 1.8%/1.5% for 3Q19/4Q19.”

The slowdown in earnings is not without cause. Economic growth, which has gone unimpeded for more than 10 years, has been showing signs of weakness recently. Slowing manufacturing activity, GDP, and exports are stoking fears of an imminent recession. Even further easing from the U.S. Federal Reserve is unlikely to stave off the downturn at this point.

Political tensions are also escalating around the world. A hard Brexit is looking like an increasing possibility, tensions with Iran are heating up, and the U.S presidential election race is sure to intensify political divisions, which could easily undermine any positive economic sentiment that still remains.

In addition to Deluard’s thesis of a major correction coming sometime this fall, one of the markets most-trusted indicators of recession—an inverted yield curve –flashed its starkest warning since 2007. Rates on the 10-year Treasury note have been below those of the 3-month Treasury bill for months now, but on Monday the negative spread increased to its widest level since the lead-up to the 2008 financial crisis, according to Bloomberg.

David Rosenberg, chief economist and strategist at Gluskin Sheff, sounded another alarm bell recently, claiming that a Federal Reserve-induced corporate-debt bubble will likely tip the economy into the next recession. “My thesis all along has been that this will be a capital spending-led recession,” he said. “We’re going to be finding a lot of the cash flows being diverted to debt service—even under this low interest rate environment—and away from capital spending.”

Looking Ahead

Despite predicting a 20% stock sell-off, Deluard is hopeful about the opportunities when the market bottoms. His forecasts for the last half of the year include a weakening U.S. dollar, rising yields, gains in emerging markets, and a rebound in value and cyclical stocks. Of course, if the U.S.­–China trade relationship deteriorates even further, markets could be in for an even rougher time than what he is predicting.