Stock Market Crash 2024? 3 Predictive Metrics That Suggest a Sizable Downturn in Stocks Is Forthcoming

The stock market has been on a rollercoaster ride in recent years, and with inflation, interest rate hikes, and geopolitical tensions still looming, many investors are wondering: is a crash coming in 2024?

While predicting the future is impossible, analyzing historical trends and current economic indicators can help us identify potential warning signs. Here are three key metrics that suggest a sizable downturn in stocks might be on the horizon:

1. The Fed’s Aggressive Rate Hikes:

The Federal Reserve has been aggressively raising interest rates to combat inflation. This has already slowed economic growth, and further increases could push the US economy into a recession.

Here’s the data:

• 2022: The Fed increased rates by a total of 4.25%, the most aggressive tightening cycle since 1980.

• 2023: The Fed has signaled continued rate hikes, with the target federal funds rate projected to reach 5.1% by the end of the year.

Case study: In the 1980s, the Fed’s aggressive rate hikes led to the 1987 stock market crash, which saw the Dow Jones Industrial Average drop by 22.6% in a single day.

2. Rising Corporate Debt:

Companies are increasingly burdened by debt, making them more vulnerable to economic shocks. This could lead to defaults and further weaken the stock market.

Here’s the data:

• 2022: Corporate debt reached a record high of $11 trillion, with a significant portion of that attributed to low interest rates and easy borrowing conditions in the years leading up to the pandemic.

• 2023: Rising interest rates are increasing the cost of servicing this debt, making it more challenging for companies to manage their finances.

Case study: The 2008 financial crisis was largely driven by a surge in subprime mortgage debt, which eventually led to widespread defaults and a devastating crash in the housing market.

3. The “Inverted Yield Curve”:

The yield curve is a graph that shows the interest rates on bonds with different maturities. When the yield curve inverts, meaning short-term interest rates are higher than long-term rates, it’s often seen as a harbinger of a recession.

Here’s the data:

• 2022: The yield curve inverted for the first time since 2019, signaling an increased risk of a recession.

• 2023: The inverted yield curve has persisted, with the gap between short-term and long-term rates widening.

Case study: In the past, an inverted yield curve has consistently preceded recessions. It accurately predicted the recessions of 1990, 2001, and 2008.

What Does It All Mean?

While these metrics suggest that a stock market downturn is possible, it’s crucial to remember that they aren’t guarantees. There are always other factors at play, and the economy can be unpredictable.

However, it’s important to be aware of the risks and to take steps to protect your portfolio. This includes:

• Diversifying your investments: Don’t put all your eggs in one basket. Spread your money across different asset classes, such as stocks, bonds, and real estate.

• Having a solid emergency fund: This will provide you with a safety net in case of a job loss or other unexpected expenses.

• Reviewing your risk tolerance: Make sure your investment strategy aligns with your comfort level and financial goals.

By staying informed and taking proactive measures, you can navigate the market’s ups and downs with greater confidence. Remember, it’s not about predicting the future but about preparing for it.