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The US stock market has fainted. But there are risks that threaten to dampen the euphoria.
The three “key risks” are Federal Reserve policy, a surprise recession and lower-than-expected corporate earnings results, David Rosenberg, founder and president of economic advisory firm Rosenberg Research & Associates, said Wednesday at CNBC’s Financial Advisor Summit.
The S&P 500 and technology-heavy Nasdaq closed at record highs on Tuesday. U.S. stock indexes are up about 11% each so far in 2024, as of about 3 p.m. ET on Wednesday.
Major threats to the stock market
Nvidiaa maker of artificial intelligence chips, has been instrumental in driving up the stock market, market analysts said at the FA summit.
The company, a “poster child for generative AI at scale,” is “solely responsible for the final leg of this bull market,” Rosenberg said. It’s up 90% in 2024 alone, as of Wednesday at about 3 p.m. ET.
Nvidia is “certainly a poster child” for more positive stock market sentiment, Universa Investments COO Brandon Yarckin said at the FA Summit.
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Nvidia reports quarterly earnings results after the market closes on Wednesday.
Disappointing results could send the stock market lower, Rosenberg said. It would be similar to what happened in 2000 around the dot-com boom, when Cisco’s missed earnings ended the tech mania, he added.
Additionally, Fed policymakers have raised interest rates to their highest level in two decades to curb high inflation. It’s unclear when the Fed might start cutting borrowing costs. Many market researchers assume that this will happen at least once by the end of the year.
High interest rates have led to higher returns that investors can earn with cash and money market funds, where they can earn a return of perhaps 5%, for example, Rosenberg said. Keeping interest rates higher over a longer period of time would give cash and money market funds an edge over stocks in terms of risk-reward, he said.
Additionally, the U.S. economy remained strong despite high borrowing costs and a gradual decline in inflation. That has led many forecasters to predict that the economy is on track for a “soft landing.”
If a recession occurs that no one expects, it would be a “big surprise” that would threaten the stock market, Rosenberg said.
Surprise and uncertainty – both economic and geopolitical – are two things investors hate most, Carla Harris, senior client advisor at Morgan Stanley, said at the FA Summit.
But long-term investors should resist the temptation to jump ship if the market falters, experts say.
The richest and most successful investors “stay in the markets longer,” said Raj Dhanda, partner and global head of asset management at Ares Management Corporation.
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2024-05-22 20:16:03
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