Yesterday’s 513-point plunge in the Dow marked the ninth-worst stock sell-off in the history of the Index. The warning lights have officially started flashing, and it’s an indication that you shouldn’t start bargain hunting yet. Investors are jittery. Here’s why:

1) The debt ceiling debate. Yes, Congress found a way to avoid defaulting on its debt, but the strung-out drama was a wake-up call for investors – particularly after S&P threatened to downgrade the country’s credit-worthiness.

2) Sluggish growth. Last week, we learned Gross Domestic Product – the sum total of the U.S.’s economic output each year – grew just 1.3 percent during Q2. On top of that, QI-growth was revised down from 1.9 percent to 0.4 percent. That’s dangerously close to negative growth, and two consecutive quarters of negative growth is the generally-accepted definition of a recession.

Even scarier? The Treasury Department announced yesterday that the National Debt now stands at 100 percent of the country’s GDP. That hasn’t happened since World War II, and we now collectively owe out some $14.58 trillion.

3) Anemic consumer spending. For the first time in nearly two years, consumer spending dropped in June. That’s troubling as consumer spending accounts for 70 percent of the U.S. economy.

4) Say ‘no’ to QE3? The days of easy money are winding down now that QE2 has officially ended. If things get worse, the Fed might have to act, but for now, they’re standing by their “no QE3″ stance. Without an extra kick in the economy, there’s just not a lot to get excited about.

Where do we go from here?

The bigger question, though: how far will this latest stock market crash go? That depends on economic growth, of course, and some of the world’s leading banks have started upping their bets that a double-dip recession’s on the horizon.

In the words of Bank of America Merrill Lynch economist Michelle Meyer, “The economy is only one shock away from falling into recession.”

Meyer says there’s a 35 percent chance of a recession in the next year (per the Financial Post).

Here are a few more predictions:

IHS Global Insight: 40 percent odds of a new recession (per Mercury News).

Vanguard: 35-40 percent odds (per Mercury News).

Former Fed officials: 20-40 percent (per UpperMichigansSource).

The boldest prediction, though, comes from Harvard economics prof Martin Feldstein, who has laid down 50 percent odds for a double-dip recession (per Bloomberg). If he’s right, the stock market is due for a lot more pain.

Regardless of the predictions, though, the financial crisis in 2008 taught us that sell-offs shouldn’t be taken lightly. Sure, you should buy when there’s blood in the streets, but you want to make sure the bleeding’s not just getting started.

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Tags: double-dip recession, recession, stock market crash, stock market predictions

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