Colin’s note: Today, I’m answering an important question from one of your fellow readers…
Should we expect a substantial market correction in 2024?
So, today, I’ll give you my outlook for 2024… my thoughts on a potential correction in the stock market… And my shorter-term outlook.
It’s all in today’s video. You can watch it by clicking below… Or read on for a transcript. And, as always, if you have a question you’d like us to address in a future Bleeding Edge, you can write us your thoughts and concerns at [email protected].
What is going on investors? I hope you guys are doing well out there. I’ve got another subscriber question today, and it’s a good one…
So far, I’ve been very impressed with your recommendations and respect your opinions. I would like to have your opinion if you, too, are expecting a big correction in 2024? Your opinion will be very much appreciated.
– Jeff I.
Now, I’m going to do this subscriber one better. I’ll not only give you my outlook for 2024 and my thoughts on a potential correction in the stock market… But I’m also going to give you my shorter-term outlook.
Over the next six to eight weeks, I’ll give you some data points on where I think the markets are heading… and some things you can do in the meantime. We’ll talk about the broader markets over the length of 2024.
Now, in the shorter term – over the next six to eight weeks – I am absolutely expecting an 8% to 10% correction in the stock market.
I look at the S&P 500… And I look at price.
You can look at the government… or a single stock or sector… and you can point to different data points and say they might lead to a recession. It leads you to the conclusion that you want to have.
But with the S&P 500, it’s a little more difficult. We’re talking about the price action of the world’s 500 most valuable – and most covered – stocks. So, in my opinion, the price action of the S&P 500 is the biggest and best indicator of if we are heading toward a downturn.
Now, in the short term, markets are over-extended. We have just approached and eclipsed all-time highs on the S&P 500. That’s usually where sellers step in and you don’t have that incremental buyer.
We’ve also had a breakneck rally since about October 2022 – especially from October 2023. The S&P 500 has rallied very hard about 15% to 16%. So an 8% to 10% drawdown in the S&P 500 isn’t an unrealistic expectation.
And I don’t call it a big correction, necessarily. It’s more something you should be buying and accumulating on. That type of drawdown would take you back down to about 4,400 on the S&P 500 – shaving about 500 points off the index.
Really, this would just be a continuation of the technical pattern we’ve been making for well over a year and a half now. An 8% to 10% correction would simply be continuing a technical pattern on the S&P 500.
So what can you do in the meantime if a situation like this materializes? We’re very comfortable recommending you buy… So long as you are setting stop-losses, you’re moving your stop losses up, and you are taking profits.
Again, this goes to our subscriber base of folks who are in retirement – or very close to retirement – since preserving capital is of the utmost importance. But if you’re 25 years old, you’re letting your IRA and your 401k roll, there’s really no reason to protect yourself from an 8–10% drawdown.
But those of you in retirement are very valued subscribers… And if you’re in that age range, you certainly can protect yourself. So go ahead and bump up those stop-losses.
Any purchases you do make – from a recommendation standpoint – need very tight windows. We sometimes receive criticism when we make a recommendation with a tight buy range. It’s simply because markets are at all-time highs. In those situations, it pays to be a little more cautious when you’re buying.
Now, as we stretch things out and look out to 2024 towards the end… Do we have a 20% correction? A 25% or 30% correction in the stock market?
Right now, I would have to say absolutely not. There’s no data point out there that specifically points to it. There are a couple of data points, in fact, that I think fly in the face of markets having a major drawdown.
Number one is if you look at money market data from the Federal Reserve – look at the money held in money market funds.
A lot of people have been taking their cash and parking it in these money market funds, earning 4%… 4.5%… 5%… 5.5%.
Shoot, I’ve even got a couple of bucks sitting in a money market fund. Those are at record highs. Now, seeing a lot of money parked in money market funds… that doesn’t indicate a recession or tough times in the stock market are not coming… But it certainly means that there’s plenty of money on the sidelines to step into these markets if, and when, some kind of correction materializes.
Also, say we do get a massive correction in the stock market. Guess what’s going to happen? The Federal Reserve is going to drop rates. Those money market interest rates are going to drop down to levels that don’t make it worth having money parked in there. So that money will flow out. And where is it going to go?
More than likely, it’ll go to high-yield stocks and back into the equity markets.
Going back to the “money on the sidelines,” and probably more kind of the speculative side… I saw this news today on a lot of the venture capitalist news sites that I follow.
Venture capitalists have a record $311 billion of unspent cash sitting on the sidelines waiting to be invested into new startups and ventures.
To give you an idea of how big $311 billion is, venture capitalist groups here in the U.S. raised a record $435 billion from 2020 to 2022. So $311 billion is not far behind that amount.
So there’s a lot of money sitting on the sidelines. It’s not only in very safe and liquid money market funds. You’ve got money sitting on the sidelines of some of the most speculative investments waiting to be put to work.
Now, the last data point I’ll point to is one that probably gets overlooked quite a bit. Look at homeownership. That’s where wealth is often tied up for most Americans. Yes, a lot of people have money in the stock market. But even more people have equity and wealth tied up into their real estate and their house.
A record number of Americans – more than 40%, most of them baby boomers – own their homes outright here in the U.S. That means nearly every other house you drive by on your street is probably owned outright.
Then if you take the other 60% of people who still have a mortgage on their house, the vast majority of those mortgages are at incredibly low interest rates. We’re talking less than 4%… in a lot of cases, less than 3.5%.
Keep in mind that the real estate market caused the last big recession that we faced here in the U.S. And while many homes are a little pricey – maybe completely overpriced in some markets… From an ownership perspective and an interest rate perspective for people who are borrowing, the real estate market is incredibly healthy.
There’s a ton of money parked on the sidelines. There’s a ton of money locked up into real estate as it relates to unrealized gains and equity. Yes, in the shorter term over the next six to eight weeks, I do see an 8% to 10% drawdown in the S&P 500. Again, I expect it will peel off about 500 points on the broader S&P 500.
But for a broader market downturn in 2024, I simply don’t see anything that makes me believe that it’s possible. Obviously, my mind can be changed and situations can change rather rapidly, but right now, no.
We’ll knock on wood a little bit. But if that situation materializes, we’ll be quick to act for our paid subscribers, evaluating our recommendations, our stop-losses, and profit-taking opportunities. We’ll also keep you updated here on the channel.
Hope you guys have a wonderful day. My name is Colin Tedards. This has been The Bleeding Edge, and we’ll see you again later this week. Bye for now.