5 Reasons the US Stock Market is more likely to crash than skyrocket in 2024.
5) The Magnificent Seven. The performance of the Magnificent 7 this year has been nothing short of startling. Look at the YTD performance – $MSFT (55%) $AAPL (50%) $TSLA (86%) $AMZN (82%) $META (201%) $NVDA (209%) $GOOG (58%). Jumps like this from large companies are unprecedented. Even considering AI and much of the gains attributed to making up for a poor 2022 performance, the leaps just seem too detached from reality. The Mag7 has carried the S&P500 this year. Reviewing the weighted index shows that they largely saved 2023. These stocks could fall 30%-60% in 2024 and still have a 5 year chart that looks healthy. Even without macroeconomic headwinds, competition is growing and market share is eroding for most of the 7.
4) The Presidential Election. Markets like stability and predictability. 2024 is shaping up to potentially be one of the craziest elections of our lifetime. Many of the election transparency and prospective fraud concerns of 2020 have not been addressed. Upon the 2020 election concluding, Texas and 22 other states brought their case to the Supreme Court, stating that GA, MI, PA, and WI violated the Constitution by changing their election procedures to limit the spread of COVID-19. SCOTUS shot the case down, reminding Texas and the supporting AGs that these are state elections. Simply put, regardless of merit, their potential problems are not Texas’ problem. Too bad too sad. Beyond possible election disputes, RFK Jr is polling as a 3rd party candidate 2x higher than any 3rd party ever has, including the Ross Perot campaigns. Add in the fact that the former President and leading GOP candidate Donald Trump faces legal challenges our country has no precedence surrounding. Volatility could go wild.
3) Geopolitical Tensions. The war in Ukraine is largely a stalemate. While the Ukrainian president suspends elections and pushes the US to continue funding its war, dollar tightening desires and putting America’s border first have become a priority for the GOP. Ukraine wants billions in additional aid along with new planes so that it can conduct operations behind enemy lines, but obtaining both doesn’t look promising. Meanwhile, tension between China and Taiwan continues to grow. Inflammatory words and actions have not slowed. Chinese President Xi Jinping bluntly told President Joe Biden during their recent summit in San Francisco that Beijing will reunify Taiwan with mainland China but that the timing has not yet been decided. Many experts speculate 2024 will be the year; perhaps due to what China considers a window of opportunity, especially if the Taiwan elections do not go as they desire. War is generally not good for the stock market.
2) BRICS and the US Economy. The rapid growth of BRICS is also something that continues to fly under the radar. The world is quickly moving away from the US dollar. With Brazil, Russia, India, China, and South Africa leading a the charge alongside a motley crew of other nations against the USD, economic alliances we once counted on are starting to erode. Collectively, these nations now represent the majority of the world’s GDP; a fact that would have been laughed about if mentioned just a few short years ago. On the economy, interest rates prospectively coming down will be good for the stock market, right? Well, no, not always. Look at the historic cycles. Lower rates might be good for the economy as a whole, but they aren’t always good for the stock market. There’s no shortage of squiggle charts to show this. Inflation in 22-23 has made life for the average American much harder. The stock market has seemingly hung on every syllable uttered from Jerome Powell’s mouth regarding rates, largely tying the market to his articulated sentiment. The prospects for a recession (not a soft landing) in 2024 are very real. The record-breaking state of the stock market today (not adjusted for inflation) seems to imply there’s virtually no chance of a recession in 2024. Powell has been cautious with his words, yet the market acts like he said it’s time to pop the champagne. The market’s response to Powell seems similar to Jim Carrey’s reply to Mary Swanson in Dumb & Dumber. — “So you’re telling me there’s a chance. YEAH!”
1) Credit Event. Borrowing has become harder. Credit card balances by US consumers are at all time highs. Delinquencies are up. Commercial real estate is down and expected to get worse. And most importantly, the debt is now at an absolutely staggering figure of $34T. How long can we kick the can down the road and just make believe our country’s credit situation and tendency to live beyond our means is sustainable? Even if inflation is no longer increasing, the higher prices seem like they’re here to stay; all while wages haven’t moved much. Issues abroad also impact the US market here at home and could be a catalyst for a credit event. Take Japan for example. The YEN has fallen about 20% over the last 2 years vs the USD and other currencies. A Japanese recession could set off a global domino effect, impacting the American economy and creating a “flight to safety”. An event like that could be more unpredictable than ever before. Historically, gold, lumber, treasuries, and some dividend producing stocks have been safe havens. Today, Americans may have a more fragmented approach when rushing to park their money.
//// At the end of the day, it isn’t about being bullish or bearish. Detaching emotion from logic leads to better financial decisions. Have a plan. Invest wisely. We’re bullish about America and think the country has brighter days ahead. We’re rooting for a good market. We certainly hope we aren’t “Rome, but with WIFI and MEMES.” The American dream can live on; so can success in the stock market. In the short term though, pragmatism brings forth quite a few concerns. What do you see on the horizon for 2024?