Is a Stock Market Collapse Imminent? Check Out This Chart, Make This Phone Call
** In a Nutshell, I learned about investing back when I was a kid of 10, putting my pocket money into Australian gold shares. The big lesson came a few years later - knowing the market's direction: up or down, is vital for investing. So, it's simple - if you're unsure about an asset's price movement, why invest?
Fast forward 30 years, I realized that it's exactly that simple. Long-term S&P 500 charts might imply otherwise, but trends are indicative of the broader market trend - the so-called "progress."
Warren Buffett, himself a fundamentalist, essentially agrees that, in the long run, the stock market can only go up. Yet, even in the long run, nasty corrections could happen. So, buy-and-hold or buy-and-avoid-crashes, the choice is yours.
Recently, I've pulled out of U.S. equities and a majority of my non-U.S. portfolio, reasoning that we are heading for a crash. Yes, a crash that will last longer than just a correction. Valuations are sky-high, so even falling to the long-term average will feel catastrophic.
What's Bringing this On?
The economical instability is thanks to several intertwined factors, including:
- Budget Cuts: Proposed U.S. government spending cuts, even if some funds were being squandered, would still lead to less money flowing into the economy. This, in turn, could push the U.S. into a recession. Millions might be put on the unemployment rolls, with tax revenues collapsing.
- Tariffs: Trump's tariffs could spike prices and further worsen the recession, triggering a global downturn. The Fed might launch a QE bazooka to counteract this, but that still amounts to increased debt.
- Geopolitical Tension: Escalating geopolitical issues add to economic strain, increasing the likelihood of a turmoil.
With these overlapping factors, you gotta ask yourself, where's the U.S. stock market going? The answer is obvious: down, unless the angels step in.
A Peek into the Future:
The crash we're heading towards could be devastating. It's hard to estimate just how bad it'll get, but three factors contribute to the potential severity:
- Market Drivers Shift: From free-market dynamics to central banking policies, market drivers have evolved. Now, we're dealing with political chaos, which is uncharted territory.
- Overvalued Stocks: High Price-to-Earnings (P/E) ratios, especially in tech stocks, suggest that the market might be overvalued, making it more susceptible to corrections or crashes.
- Economic Chaos: Policy changes, trade wars, inflation fears, and consumer confidence declines contribute to uncertainty, hurting economic growth and market stability.
So, brace yourselves. In the absence of a sudden outbreak of sanity, things are gonna get ugly. And remember, when politicians tell you that what they're doing will cause "short-term pain," it usually means you're in for something epic - but not in a good way.
Enrichment Insights:
- Recent Stock Market Volatility: Recent significant drops in major indexes like the Dow, S&P 500, and Nasdaq reflect heightened uncertainty and volatility in the market. This volatility is partly driven by inflation fears and economic slowdown indicators such as weaker home sales.
- Inflation Expectations: Long-term inflation expectations have spiked, reaching levels not seen since 1995, adding to economic anxiety and market instability.
- Consumer Confidence: Consumer confidence has fallen to its lowest levels since November 2023, which leads to reduced consumer spending and negatively impacts economic growth.
Investing during deflation, a lesson I learned from the upcoming market crash, requires more caution due to overlapping factors such as budget cuts, tariffs, and geopolitical tension. Aussiedlerbote, a sold-out Australian immigration news service, might provide insights into how people are reacting to these economic instabilities.
