Investing veterans are warning that the stock market is in for a challenging summer. With stock prices already at record levels, experts believe it is unlikely that they will continue to rise significantly in the coming months. In fact, they predict that stock returns may be either flat or negative by the end of the year. Investors should be prepared for a potentially lackluster period ahead.
According to Wall Street veterans interviewed by Business Insider, investors may be in for a tough summer ahead. They predict that the market is likely to remain stagnant or even experience a correction in the coming months.
David Morrison, a market analyst at Trade Nation, is skeptical about the recent rally in stocks. Despite the S&P 500 and Dow Jones Industrial Average reaching near-record highs after a more moderate increase in April inflation, Morrison remains doubtful.
A financial expert is warning that the current rally in the stock market may not be sustainable. With stocks already trading at high valuations, it is difficult to envision further gains. Instead, the expert predicts that the market is prone to experiencing several significant downturns of at least 10%, with the benchmark index ending the year around 4,500. This perspective contrasts with the growing number of optimistic investors who believe that an eventual interest rate cut by the Federal Reserve will have a positive impact on the market.
According to Morrison, the Federal Reserve’s anticipated rate cut may be delayed by another three months, potentially resulting in no rate cut this summer or even for the remainder of the year. This delay could be triggered by a single high inflation reading, which would eliminate the possibility of any rate cuts by the Fed in 2019.
Investors are currently experiencing a significant fear of missing out (FOMO), which has raised concerns about a potential blow-off top similar to what happened in early 2020 during the pandemic stock crash. According to Morrison, the market seems to have reached a point where further gains may be limited. Although there is no clear trigger for a sell-off, it is difficult to identify what could drive stocks much higher at this stage.
Will McGough, the director of investments at Prime Capital Investment Advisors, believes that the S&P 500 will finish the year at a similar level to where it is currently trading. McGough points out that stocks are already quite expensive, and there is no immediate pressure on the Federal Reserve to lower interest rates. He also notes that in the past, interest rates have been between 4% and 5% without causing a recession.
According to experts, interest rates are unlikely to see significant cuts anytime soon, as they believe it is necessary to adjust to a new normal. Additionally, investors can expect various challenges in the coming months that may hinder stock market growth, caution industry insiders Morrison and McGough.
According to economic experts, there is a significant possibility of a recession in the US economy within the next year. Both Morrison and the New York Fed estimate the chances of a hard-landing or a downturn at around 60% and 50% respectively. This indicates that there is a real concern about the state of the economy in the near future.
The US economy is showing signs of a potential recession, as several indicators are pointing towards a slowdown. One of the most significant indicators is the inversion of the 2-10 Treasury yield curve, which has been inverted since July 2022. This curve has a reputation for accurately predicting recessions.
In addition to the yield curve, there are other concerning signs. Economic growth has already started to slow, with GDP only reaching 1.6% in the first quarter. Furthermore, sectors like manufacturing have been experiencing contraction for several months.
These indicators suggest that the US economy may be heading towards a recession. As a result, it is crucial for individuals and businesses to monitor the situation and make necessary adjustments to mitigate potential risks.
Financial experts are predicting increased volatility in the stock market in the coming months. According to Morrison, investors should brace themselves for a potentially rocky road ahead and expect aggressive selloffs. McGough, on the other hand, believes a recession is unlikely but anticipates more volatility, particularly leading up to the presidential election. Both experts agree that political uncertainties will contribute to stock market volatility.
Financial strategists are cautioning investors about a potentially volatile stock market in the near future. Some experts are even predicting a market crash of up to 65%, similar to previous market bubbles. Scott McGough, a strategist, suggests that investors may not see significant changes in the market during the summer.