Yahoo Finance Jaspreet Singh: Will the Stock Market Crash in 2024?
With stocks swinging wildly in 2023 between new highs and corrections, investors are questioning if the volatility will continue into 2024 or if a full-on crash is ahead. According to Jaspreet Singh — a financial educator who provides analysis on economic trends and the stock market — predictions run the gamut. In a recent video, Singh gave his outlook on what factors could impact stocks in 2024 and whether we may see a market crash.
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While the future is uncertain, Singh outlines four key factors to pay attention to in 2024. For passive, long-term investors, Singh emphasizes that these short-term fluctuations shouldn’t affect a strategy of dollar-cost averaging into the market. However, understanding the forces that move markets can help investors prepare for and identify opportunities.
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Consumer Spending
Singh notes that while the stock market and economy don’t always align, tracking economic health can provide insight into market psychology. Investors tend to bid up stocks when they see optimistic growth ahead and pull back capital amid pessimism.
In recent years, resilient American consumer spending has powered profits and revenue growth for businesses and investors alike. However, Singh highlights that much of this spending has been fueled by debt, whether via credit cards, home equity or other borrowing.
“Americans are spending money like crazy,” said Singh. “When Americans go into debt … they use debt to go out and shop and spend money. This is good for businesses … but it’s not good for the spender. It’s not good for the consumer. Because now you’re going broke to make everybody else rich.”
At some point, consumers may hit a breaking point where they exhaust resources and shift from spending to paying off debt.
Slowing spending would directly hit business earnings. In turn, investors could lose money as stocks reflect this downturn. With Americans currently on pace to potentially run out of capacity to spend more relative to income in 2024, monitoring shifts in consumer behavior will be important.
The X Factor
Singh dubs the influences of the United States government policy and the Federal Reserve Bank as “the X Factor.”
“The reason why I call it the X Factor is because it’s kind of out of everybody’s control,” said Singh.
For example, despite high inflation, the Fed could feel pressure to lower interest rates or prop up the struggling economy to support the incumbent administration.
Likewise, new legislation meant to directly or indirectly support markets and investors could emerge. As a case in point, Singh pointed to recent billions in subsidies for commercial real estate owners to repurpose empty offices.
He said: “The White House passed a $45 billion bill to subsidize office landlords to give them essentially free money … to convert some of these vacant offices to residential buildings … and to help kind of boost that economy. These things can create inflation, but they can also boost the economy, and so we don’t know what types of bills are going to try to be passed in 2024.”
While the efficacy and need for such measures can be debated, the takeaway is that more market-friendly actions meant to bolster the economy leading up to the 2024 election could surface.
Geopolitics
On top of domestic issues impacting markets, geopolitical conflicts and events abroad continue to develop. This includes the war in Ukraine, Middle East turmoil and anti-dollar efforts by countries like China and Russia to undermine American monetary dominance. Singh cautions that entering any new wars or experiencing disruptions from competing currency efforts could roil markets.
“There’s a lot of geopolitical issues happening in the world, while we’re seeing a lot of conflict inside of the United States, and all these things can create more issues geopolitically,” said Singh. “If the United States enters a war, that could dramatically impact the stock market, essentially overnight, and so we don’t really know what’s going to happen here.”
For investors wanting to better comprehend linking between global finance and geopolitics, Singh recommended “Principles for Dealing with the Changing World Order” by Ray Dalio as a resource. With numerous unsettled conflicts, investors should monitor how events unfold in 2024.
Impacts of High Interest Rates
Singh pointed out that interest rates are elevated across the board right now, impacting both borrowers and investors.
“That means if you want to go out and buy a home, or buy a car with a mortgage or a loan, you’re going to pay more interest,” Singh said. “But the flip side to that is if you put your money into a high interest savings account, you can get a higher rate of return on your savings, which is kind of nice. Like going into 2024 you can see a 5% return on your savings account on an FDIC-insured bank.”
Singh noted that these high interest rates directly change the calculus of where to allocate money. Investors have more options to consider.
“If you can get a guaranteed, let’s say, 4-5% return without any risk, you have to compare that to putting it into the stock market where maybe you can get a 10% return, but it’s more risk. Now, your job as an investor is to decide what’s a better place to invest.”
Higher guaranteed yields in “risk-free” assets like government bonds and savings accounts versus uncertain stock market returns may prompt investors to shift funds out of the stock market. Investors must evaluate the better overall deal.
“The stock market works like any other asset class,” said Singh. “It works on supply and demand. If you have more buyers than sellers in the stock market the stock market goes up. If you have more sellers than buyers in the stock market the stock market goes down. So if investors are putting more money into the stock market that puts upward pressure on stock prices and stock markets go up. If investors are pulling their money out of the stock market and maybe into other asset classes that pushes stock prices lower.”
The takeaway is that if higher interest rates present an attractive-enough alternative, more investors may shift their money out of stocks, depressing prices.
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