As we approach 2024, economic signals point toward potential turbulence in the global market. Experts predict a stock market crash 2024, fueled by economic factors such as inflation, interest rates, and overvalued stocks. It is essential to understand the risks and prepare accordingly.
The stock market has grown significantly over the past few years. Since late 2022, when it was at its lowest, the S&P 500 has risen by approximately 57%. In contrast, the Nasdaq recorded an incredible 77% increase during the same period, while the Dow Jones saw an increase of approximately 37%.
However, the market can’t keep rising indefinitely, and sooner or later, there will be another bear market or potentially a crash. Even though it’s impossible to predict with accuracy whether that will occur in 2024, it can be useful to consider what the past has to say about similar times, as there may be both positive and negative news to be discovered.
Due to concerns about inflated valuations and the possibility of a market correction in 2024, experts have advised cautious investment strategies as a result of the market’s rapid upward trajectory.
In this blog, we’ll look at the risk factors that could cause a downturn, the economic indicators influencing the market conditions, and the precautions investors can take to protect their wealth.
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Economic Factors Shaping 2024:
High Inflation: As long as inflation stays above the Federal Reserve’s 2% target, it is unlikely that interest rates will go down anytime soon. This reduces consumer purchasing power and affects international markets.
Federal Reserve Policy: The economy is under pressure from higher interest rates because they keep borrowing costs elevated.
Overpriced US Stocks: A lot of analysts think that the current price of US stocks is too high, which increases the risk of a market correction.
7 Risk Factors that Could Lead to a Market Crash 2024
Rising Inflation Impacts Market Activity
Growing Inflation: With rates above the Federal Reserve’s 2% target, inflation is still a serious concern. Persistent inflation reduces the purchasing power of consumers, which decreases demand and reduces corporate profits. In a recession, inflation may worsen the downturn, making economic recovery more difficult.
Overpriced US Stocks
The US stock market has reached record-high valuations, especially in the tech sector. If investor confidence decreases these excessive costs may plummet, particularly in a recessionary environment when stock market corrections tend to be more severe.
Federal Reserve’s Rate Surge
The Fed’s aggressive stance on rate hikes to control inflation risks driving the economy into a recession. Increased borrowing costs decrease corporate earnings, hinder business expansion, and weaken consumer demand.
Investors had anticipated that sluggish labor numbers and declining consumer sentiment would influence the Federal Reserve’s decision, potentially delaying rate cut.
Global Debt Levels
Growing debt is a problem for the global economy, particularly in large economies like China and Europe. A major debt crisis has the potential to intensify a possible market crash and cause financial instability, especially during a recession.
For instance, the disappointing July jobs report, combined with rising unemployment rates, pointed to a weakening economy. Following the pandemic, investors have shifted their focus from inflation to jobs, fearing that GDP growth will be slow or even negative in the coming months.
Geopolitical Tensions
Markets are becoming unsettled due to the ongoing geopolitical unrest, especially between major nations like the US and China. In times of recession, such tensions frequently exacerbate trade disruptions, resulting in increased volatility and economic downturns.
Labor Market Volatility
Shifting employment and wage growth indicate a volatile labor market, which may indicate more serious economic problems. In a recession, job losses and wage stagnation worsen, reducing consumer spending power and worsening market declines.
Investor Sentiment
The way in which the market performs is greatly influenced by investor sentiment. A sharp decline in sentiment can trigger panic selling and market collapses. During recessions, fear often outweighs logic, resulting in sharp sell-off and heightened volatility.
How Did the Stock Market Crash?
Several factors contributed to the global market crash that occurred in early August. With job growth falling short of expectations and the unemployment rate rising to 4.3% in July’s payroll report, worries about a potential U.S. recession intensified. The Bank of Japan also unexpectedly increased interest rates by 15 basis points, which caused a disruption in the “carry trade” of yen.
Investors had been expecting the Federal Reserve to cut rates, but a sell-off in the market was caused by the stronger yen. Stock prices fell as a result of these factors together, indicating how sensitive the market is to changes in the domestic and international economy.
How Much Did the Stock Market Lose?
Major tech companies experienced a severe decline on August 5 as the markets were affected by weak economic data and worries about lower rates. The Nasdaq’s total market value fell by $907 billion as a whole, with Nvidia’s market cap dropping by more than $300 billion before partially recovering.
Both Amazon and Apple experienced sharp drops, losing $72 billion and $162 billion, respectively. It was a turbulent day for the tech industry as other major players like Microsoft, Tesla, and Meta all contributed to a combined loss of almost $1 trillion in value.
Certain Facts about Bull Market
Because no two bull or bear markets are identical, comparing them is not always useful. However, understanding how long they usually last can provide insight into the current market. Since 1929, the S&P 500 has seen 286 days on average of bear markets and 1,011 days on average of bull markets.
In particular, bull markets have been longer in recent years, with half of the last 10 extending over 1,000 days, an important indicator for 2023 trends.
Steps for Investors to Prepare for 2024
With the possibility of a market crash in the rest of 2024, it’s crucial to take preventative measures to safeguard your investments:
Speak with a Financial Advisor: In the context of the continuous market volatility, seek the advice of a professional who can determine your level of risk tolerance and recommend investment plans that suit your goals.
Diversify Your Portfolio: Distribute your investments among several industries and asset classes to reduce your exposure to a single market downturn in the months ahead.
Keep an Eye on Economic Indicators: To stay informed about possible market risks and trouble ahead, keep an eye on inflation rates, interest rates, and employment data.
Consider Structured Notes: If you want to strike a balance between growth and protection among investor, structured notes could be a good fit for your portfolio.
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Bottom Line
Considering the possibility of a market crash in 2024, it’s critical to remain vigilant. You can better protect your investments in an uncertain environment by speaking with a financial advisor, diversifying your portfolio, keeping an eye on economic indicators, and considering structured notes. Though the future of the market is still uncertain, you can manage the difficulties and be ready for anything that comes next by implementing these preventative steps.
