Will the stock market crash? Three investors share their predictions

The uncertainty created by the March collapse of Silicon Valley Bank (SVB) and the unfolding apparent crisis of the US banking sector has led to concerns that the country’s stock market could soon collapse.

Business magnate and investor Warren Buffett, as head of his firm Berkshire Hathaway, announced in early May that the company dumped $13 billion worth of US stocks in the first quarter of the year. Buffett’s famous ability to guess the state of the market has earned him the nickname, the Oracle of Omaha.

But will the stock market crash, or would it prove more resilient than feared? News week asked three investors for their opinion.

Tom Essaye is the president of Sevens Report Research, a group that provides daily macro market analysis to investors. He told News week that the economy is “still on solid footing”. However, there is a “substantial risk” that it will tank in the near future.

“The stock market has been ‘stalled’ for the past few weeks as investors await answers to four key questions: Will there be a recession? Will the Federal Reserve continue to raise rates? Will inflation fall? And will there be a breach of the debt ceiling?” said Essay.

“Each of these questions is enough to determine whether the stock market can rise or fall. But because all four are unsolved and will come to a head in the coming months, investors are paralyzed and waiting for a solution,” he added .

For Sevens Report, the likelihood of an incoming recession is high. “That’s why we remain cautious about the outlook for the stock market, simply because recessions have historically been bad for stock prices,” said Essaye. “To be bullish here and have a positive outlook, an investor essentially has to hope that there won’t be a recession; inflation is coming down; the Federal Reserve will start cutting interest rates sooner rather than later; and the debt ceiling is resolved. That’s not impossible list, but it doesn’t leave much room for disappointment.”

Essaye added that while a market crash is unlikely, “a large number of substantial risks to investors remain. We continue to advocate for caution in the current environment, as the best-case scenario bullish investors are betting on is not the most-probable case.”

Tyler Richey is co-editor of The Zevens Report and editor of Sevens Report Technical data. He told News week that “from a technical standpoint, price action in the stock market has been tentative in recent months, with multiple studies beginning to show signs of weakness in the broader indices.”

The yield curve of government bonds [a line chart showing the yields of short-term Treasury bills compared to those of long-term Treasury notes and bonds] has deeply reversed since last summer, Richey said. It’s “a dynamic that has an almost perfect track record of predicting recessions in modern market history (especially certain spreads like the 10s1s), so a recession sometime in the next few months is almost certain at this point.”

The stock market has never bottomed out before a recession has officially started, Richey added. “Considering those two facts alone, the odds of the October 2022 lows counting as lows for this bear market are quite low, at least according to historical economic and market cycles.”

A bull market is when prices are rising or expected to rise, while a bear market is when they are falling or are expected to fall. Some say the bear market in the US has come to an end as stocks started rising in 2023. Usually a bull market then follows.

Based on technical analysis alone, Richey said, “the likelihood of another bull market in the making with the current October lows is quite slim and the threat of a potentially violent period of market volatility in the coming months is at an all-time high. “

Jason Moser, an analyst at The Motley Fool in Virginia, told News week that he is slightly more optimistic than the two Sevens Report experts.

“I do believe that as 2023 progresses, we will begin to see the effects of the Fed’s actions. This could very well put the market on a better path for the second half of the year,” Moser said.

“Assuming we see unemployment start to tick higher incrementally and inflation continues to ease, the Fed will probably balk at their rate hikes. This could ultimately make investors a bit more bullish on stocks going forward with modest performance likely to be reversed. weighted. half the year.”

Moser added that there is a wildcard to consider in any stock market forecast: the ongoing debt ceiling negotiations.

“While I am optimistic that both sides will reach an agreement, a default is likely to throw markets into chaos in the near term and that downside risk should be recognized,” Moser said.