Three to four storms brewing for the US stock markets

THE storms brewing in the stock markets

After a difficult week, the worst in the past month, the S&P 500 dropped below its 200-day average. With the storms brewing, technical selling increased stock losses.
storms brewing
The three major U.S. indexes, the S&P 500, Dow Jones Industrials, and Nasdaq 100, declined over the week, reaching 2-week lows. This in itself is not a huge issue, individual stocks and their indexes go up and down all the time.
 
The key is, after the summer weakness and entering the earnings season, let’s look at what’s pushing the markets down. Then what could save the markets?  If looking for gold as an indicator, the gold price rose to a 10-week high. Investors are looking for safe-haven assets. Gold is one of these assets, along with U.S. Treasury bonds.

There are storms brewing

storms brewing
There are three to four storms brewing for the U.S. stock markets. First off, traders want to see stocks go up and down. Literally playing “Cat and Mouse”. No problem, intraday trends can be and are set by market movements. Intraday traders can profit from this.
 
storms brewing
But while market volatility is Mean reversing, most daily price movements are random. Thus, I am talking to stock investors. Investors are market participants who have an investment horizon of at least 12 months.
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storms brewing

THE STORMS BREWING WILL PASS, TIME HORIZON IS KEY

Stock investors with a time horizon of at least to the end of 2024. These investors must invest in stocks with a total return, price plus dividends, of at least 8%. For stocks rated on higher valuation multiples. Thus the PE Ratio, Price to Sales or Price to Free Cash Flow the specific Equity Market Risk Premium must be higher. Over 12% total return would be a start. Thus, the major Tech Stocks in particular, the Magnificent Seven, must be producing a total return of 12%. Stock investors do have legitimate concerns over their return prospects.
storms brewing

what are the potential remedies to the storms?

What’s pushing the stock markets down and what are the potential remedies. The first and most important issue facing stock investors are the rising yields on U.S. Treasuries. In particular at the long end of the U.S. Yield Curve. It is important to keep in mind, with regard to the Long-end of the U.S. Yield Curve. Interest rates are expected to increase, they are still turbulent. In 2024, the yield curve in the U.S. should invert.

Long-end of the Yield curve

Thus, short term interest rates could come down. But this is not where the real action will be for stocks. This will be at the Long-end of the Yield curve, where there could be an increase of 100 basis points or even more. The second is that after the terrorist attacks in Israel. The third is the broader issue around the U.S. economy. Then the fourth is selecting a speaker of the House of Representatives. I thought this one would have been easy.

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STORMS BREWING
STORMS BREWING

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Three to four storms brewing for the US stock markets

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Written by
Warren William

Warren William

Meet the author behind Smartest-Data. Warren William has a career in Finance and Investments extending over 35 years, both on the Buy Side and Sell Side. His most recent roles include, developing Institutional Risk Management Programs for managing Equity and Fixed Income Risk.  Prior to this Warren William work in Alternative Investments, in Investment Management and as a Buy Side Equity Analyst. Warren William brings a wealth of knowledge and expertise to the table, providing in-depth analysis and commentary on the latest trends in the Stock Markets. Contact information: wwBLOG@smartest-data.blog or Telegram +393339034488

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