Markets Turn Bumpy

Heading into October and the 4th quarter, the investment waters are getting choppier. Uncertainty reigns as investors are looking for guidance, some good stocks to buy, and to understand what factors really do drive the stock market.

There are perils for equities buyers as prices shift according to political events and with the US inching towards a FED-induced recession.  Yet, the 2024 stock market looks very inviting, and a good time to pick some healthy stocks.

Before you make a gamble, make sure you’re up on the macro picture.  We’ve got some great insight for you on this post and you can review the best stock picks afterward. Some stocks below have offered exponential price growth. Good luck finding the next rocketing stock.

However, is this dip in the market for September/October/November the ultimate time to move your money market funds into the stock market, or should you wait till next spring?  It likely is soon. It’s darkest before the light. And most investors hate to miss those price dips.

Check out the top stock investing websites to find a provider with powerful analytical tools to help you evaluate, pick and buy stocks with a big upside.

 

Yesterday, Mike Wilson of Morgan Stanley reiterated that large parts of the stock market are breaking down and even Google, Apple, Facebook, Tesla, and Amazon will feel big pain if a recession does take hold.

It’s apparent that if the FED doesn’t lower the FED rate, we’re going to get hit in the next 6 months with a downturn. Of course, investors look to the future with optimism. Smart investors are looking to buy the dip, and pick stocks that will roar back in 2024 and 2025.

FOMO will definitely be an investment trend. Despite what Tom Lee of Fundstrat predicts for the S&P forecast for Q4, indicators right now are pointing down, possibly, we might see 4,000 for the S&P.

Chief economist Jan Hatzius of Goldman Sachs lowered their prediction of a recession to 15% over the next 12 months, down from 20% the previous month. Strategists at Bank of America said they no longer forecast a 2024 recession for the U.S. JP Morgan changed their 3rd quarter GDP growth estimate to 2.5%, well up from their earlier prediction of .5%. Gary Shilling, CEO of A Gary Shilling said there aren’t any big catalysts for a market crash or recession. However, he points out that of the 12 times this situation existed, we got a recession 11 times.

They might be reviewing their forecasts right now.

This week the rally faltered as the government shutdown looms. Notice the head and shoulders technical chart signal (predicts a bullish-to-bearish trend reversal).

Stock Market Last 6 months.
Stock Market Last 6 months. Screenshot courtesy of Google Finance.

As you know, the government shutdown could cause immense pain and this might end the Democrat’s high spending ways. But that will mean the end of inflation and the lowering of lending rates. That’s good for the housing market, which would then fuel up the economy.

Energy prices are putting pressure on inflation, something the experts discounted, but $100 oil is going to take a bite out of the economy for the next 6 months. Picking oil and nat gas stocks might be the wisest investing going right now. Energy will be the best sector with astonishing low P/E ratios. Check out Southwestern Energy and Cheniere.

What is the Outlook for the Next 3 Months?

The final quarter of 2023 could go either way, but consumer savings are running out, energy prices going up, a government shutdown looms, student loan payments resume, and the multifamily housing market is in dire straights.

This isn’t a prediction of a housing market crash or stock market crash. There’s always a chance of a domino like collapse. But the markets have relied on consumers who are tapped out.

In a Bloomberg interview, Wilson said “”Some of these consumer stocks are really, really struggling.. That’s the wild card, that is the risk for the fourth quarter — can the consumer continue to surprise on the upside?”

Most of the gains in the S&P this year are Mega Caps, and those few stocks could take a dive similar to their rise year to date. Tesla is up 190% this year and when consumers avoid expensive EVs, investors might even be shorting TSLA stock.

Which are the Best Stocks to Buy in October?

Barchart’s latest report on the top performers in September show some interesting possibilities such as Groupon, Hallador Energy Company, & Olema Pharmaceuticals.

 Best Performing Stocks last 30 days.
Best Performing Stocks last 30 days. Screenshot courtesy of Barchart.com

The best weighted alpha stocks reveal AI chip stocks are hot, with therapeutics, and some energy stocks are performing well. With diminished government spending, we wonder if pharma and therapeutics stocks will get hit hard. As we enter winter, natural gas stocks might be ones worth looking at.  Oil stocks are looking good, but Biden could release tens of millions of barrels and cool all that down.

Highest Alpha Weighted Stock September.
Highest Alpha Weighted Stock September. Screenshot courtesy of Barchart.com

Still, the forecast is for a positive 2024 year for the stock market. and 2025 should be very good as the FED rate will be well down then. Stocks remember are an evaluation of future value and as rates decline, US business will really roll along. See more on the 3 month, 6 month, 5 year and 10 year stock market outlook.

The University of Michigan’s final August consumer sentiment has been riding high for several months. With American’s savings running out, a government shutdown, rising unemployment, student loan resumption, increasing mortgage defaults, and reduced government spending, this bubble is likely going to get burst.

Top Performing Market Sectors (TradingView Graph)

See which market sectors might be winners for the next year. Communications, energy and utililites are paying the highest dividends.

Best Stock Market Sectors.
Best Stock Market Sectors. Screenshot courtesy of TradingView.

The November 2024 election is only 13 months away.  It’s hard to ignore this growing factor for the stock market outlook.  If President Trump is re-elected, taxes and spending would drop and the FED rates forced downward. He would focus on American business’s well being too.  In all, this would look very good to most investors.

So for the next 3 month to 6 month forecast period, investors are still looking at opportunities to buy the bottom.  October might be the bottom, yet November could be even lower.  However, if politics follows its current course, 2024 and 2025 should be great years. Still, a new President is required to build America’s economy and business strength back.

When Will all that Money Market Money move over to Equities?

Markets have suffered low volume and disinterest for sometime, yet $5.3 Trillion in money markets is one reason to hang in there with your best picks. High interest rates are the misery and the coming reversal will take the wind out of the bond market to stimulate the business sector and draw funds into equities.  That makes the forecast for oil stocks so compelling. Easier credit by 2025 will be a particular relief for small enterprises.

Year to date, NASDAQ and the S&P 500 have persevered well. As interest rates ease, the NASDAQ is positioned best for growth, which means US tech stocks might be the best bargains. Here are your top performing tech stocks of late on the NASDAQ exchange. With the coming growth of AI, Nvidia has caught the eye of investors.

Here are your high flyers from the last month. As you can see, some smart investors picked the right stocks and made a fortune.

Top Performing Stocks on Price Growth September.
Top Performing Stocks on Price Growth September. Screenshot courtesy of Barchart.com

Morgan Stanley pointed out in their Stock Market Outlook 2023 report, the stock market does very well in non-election years (+71%), and not badly in Presidential election years (40)%). That means a drop is ahead.

6 Month Stock Outlook

By April of 2024, we might be through most of the bad news and economic crisis. The economist’s dour predictions of a 2024 crash/downturn will be done. By then, the Dems will have to capitulate on spending to reduce inflation, and that will drive a massive upward shift in the DOW, S&P, NASDAQ and Russell 2000. See more on the 6 month S&P forecast.

If the FED rate drops and mortgage rates fall, it could stimulate the housing market which fires up everything. There is a crisis in the multifamily sector for overleveraged builders, but those that get through it will see their sales improve by next spring of 2024.

The 5 Year Stock Outlook

For the period 2024 to 2029, we’re looking at impressive growth. This is mostly fueled by lowering interest rates, expanded oil and gas production, bringing manufacturing back to the US, and government spending more in line with reality instead of ideology.  The US leadership in AI and microchip manufacturing is key since AI will increasing influence manufacturing, services and the financial sector. Perhaps even the AI stock market software tools will be useful then. See more on the 5 year market outlook.

Key Market Signals to Watch For

Government Debt Crisis and Shutdown:  key driver of this current downdraft in stock prices. There will be damage as government credit rating and suppliers are affected after the shutdown. Lower spending means companies will review their risks and their decision to work with the US government going forward.

Lower Bond and Treasury Yields:  Right now the FED is sticking it to the equities market due to their desperate search for cash to pay out on debt liabilities. That’s drawn money into the bond market for comparatively weak ROI for investors who want a lot more than a few percent growth.  Only equities pay off big and create millionaires. Charles Schwab expects yields to fall in Q3 and into 2024 as inflation continues to cool.

Stock Markets Heading Down:  The last 3 months have been strong, but overall support for a strong Q4 is weakening, and Q1 2024 is looking cloudier with rain in the forecast.

Regional banks stocks: they’ve seen their stock prices fall strongly last week. The FED noted in its Loan Officer Survey that “Banks reported tighter standards and weaker demand for all commercial real estate loan categories.” Higher interest rates combined with tighter lending standards threaten to slow the economy which relies on credit.

New Inflation Data: New inflation data released today from the Bureau of Labor Statistics showed the (CPI) revealed headline inflation rose only 0.4% over last month and is up 4.9% year over year. Prices in March rose 0.1% vs February. Some are predicting a drop in the CPI which might cause the market to jump up after the announcement on Wednesday.

FED Pivot Timing:  The recent .25 rate hike should make some producers think twice about raising prices. Inflation is driven by monopolies, supply shortages, too much liquidity and demand, and the economic recovery.   The Central bankers says further hikes are unlikely beyond this most recent .25 final hike.

Rising Oil and Natural Gas Prices: OPEC looks stronger and there’s little action spoken about taking action on China and India for buying banned imports from Russia.  Biden’s regime is likely going to sit on anything that keeps oil, natural gas, and gasoline prices down and an SPR release is very likely given it’s Joe Biden’s only go-to tool.

Stengthening US Dollar: a stronger US dollar is not good for US manufacturers and exporters, but it can provide some relief for consumers who may enjoy lower import prices (if companies pass through the savings).

$7 Trillion Cash in Waiting When the Market Gives the Green Light

Investors still hoard a lot of cash, at record levels, and are still waiting for the stock market to really turnaround. During the past year, US investors holding cash were hit badly and few FX experts are calling for a resurgence in the greenback.  A strong persistent bull run should draw them back setting up a strong upswing in all indexes.

Money market funds are still swelled at $5.3 Trillion with inflows infusing another $599 Billion into the sector, according to a Bank of American report. However, the last time we saw huge inflows like that was back in 2008 after the Lehman Brothers collapse.

Market Forecasts for the Remainder of 2023

Morgan Stanley’s Mike Wilson was predicting double-digit percentage drops for stocks in early 2023. Other market prognosticators have called for recession in Q4 of 2023 or early 2024.  With the inflation staying up and the FED afraid to lower rates, this trend could lag on as experts noted today.

Reviewing guidance from investment companies and many insightful opinions is wise, and hopefully they’ll provide data and reasoning to back up their predictions, projections and outlooks.

Forecasts for the S&P

Ed Yardeni of Yardeni Research released his S&P earnings predictions for 2023 and 2024 earlier.

His earnings forecast for 2023 Q2 is -5.1, Q3 is 3.5, and for Q4 a strong 11.0. His earnings growth forecast for 2024 is again strong at 11.1% growth. This compares to Refinitiv Analyst data of -7.1 for Q2, .7% for Q3, and 9.5 for Q4. Their outlook for 2024 for the S&P is an even stronger 7.6% growth.

So the top analysts have their rose-colored glasses on.

Dow Jones DJI Projections

Currently, for year to date, the Dow Jones is underperforming and Dow Jones stocks are barely up for the year. The economic slowdown, with the rapid rise in credit costs, has stunted manufacturing.

This chart from Barchart (one of the best investing websites to subscribe to) shows few Dow Stocks were thriving despite today’s great rise. However, there will still be a great buy the dip opportunity. Investors should review oil stocks since the price of oil is suppressed. Commodities and energy industry experts believe oil prices will rise — either through OPEC cuts or the depletion of the Special Petroleum Reserve.

What To Take Into Account for the Stock Market Forecast?

The next 3 months to 6 months look volatile, driven by these factors:

  • rising Fed rates — likely one more hike of 25 basis points
  • housing market getting hammered with refinancing nightmare, glut of new construction, and demand that keeps prices rising
  • leveling unemployment and rising job claims
  • wage demands still strong but real wages turning downward now in 2023
  • persistent medium inflation above 3%
  • US GDP looking good for 3rd quarter and not bad for 4th quarter 2023
  • imports decreasing but are cheaper (unless tariffs)
  • the U.S. manufacturing sector contracted in June and July but rocketed back in August to 48 (50 is average)
  • Factset forecasts S&P EPS to grow .5% in 3rd quarter 2023, the first YoY growth since 3rd quarter 2022.

Is This the Bottom for the Stock Market?

Plenty of investing gurus are suggesting we’re in a buying opportunity, while some say we haven’t seen the bottom yet. The usual bears such as Michael Burry, Jeffery Gundlach, David Rosenburg gave gloomy outlooks, supported by the last Bank of America prediction as well.

Current Major Indexes (as of August 7, 2023)

S&P 500 : 4,478.00 ↑
Dow Jones: 35,065 ↑
NASDAQ : 13,909.00 ↑
Russell 2000 : 1,957.00 ↑
WTI Crude Oil : $81.90 per barrel ↓
Gold: $1940.30 per ounce ↓
US Dollar : $102.01 ↓

What Do the Economists Say about a Recession?

Ethan Harris, head of global economics research at Bank of America Corp. “We’re either going to have a weak economy or a recession.” — TBS News Report

Jamie Dimon of JP Morgan said there’s a 66% likelihood the U.S. is headed into a mild recession or something even worse.

We put the odds that the economy will suffer a downturn beginning in the next 12 months at one in three with uncomfortable near-even odds of a recession in the next 24 months,” said Moody’s Analytics chief economist Mark Zandi said last May. — Washington Post.

Are Investors Not Realizing the Bear Market Has Left?

Lael Brainard, usually a more dovish policymaker, said she expected “a combination of rate increases and a rapid balance sheet runoff to bring U.S. monetary policy to a more neutral position later this year. Further tightening would follow as needed” — from CNBC report.  So far, pretty accurate.

Forecasts 3 Months to 5 Years to 10 Years

Getting a clear view of the economy in the next 3 months to 10 year framework takes a little study. You can view more on the immediate market situation, the 3 month outlook, 6 month outlook, 5 year outlook and 10 year outlook. A smart investor will make themselves very aware of each forecast period.  The current market view will disappear and like a slide show, move to the next period.

The five year to ten year outlook is steadier and it’s important to consider that politically, the intent is to bring industrial production back to the US. That single factor should help view the future more optimistically. Interest rates, mortgage rates and lending to small businesses should all improve.

Stock Market Crash Possibilities

The general mood is that we’re in for a soft landing and the economy will not collapse. That pretty well negates a crash, although some experts are still playing it safe. It’s not risk off for top fund and investment managers.

Here’s 7 Factors to Watch as Signals of a Downturn

  • inflation persists or rises (wages, energy, consumer prices, rent)
  • government insists on printing more money and spending more
  • Interest rates rise (could go up further)
  • disappointing earnings in Q4 (consumers pulling back spending fast)
  • geopolitical conflict such as China/Russia strife (that will intensify)
  • regional bank crashes (believed to be done, but some concerns remain)
  • oil price shocks (yes, oil prices are rising fast with supply down)
  • supply chain disruptions as manufacturing returns back from China

It won’t be a trade war, but a negotiation of foreign involvement in the US and how to avoid trade sanctions and tariffs.

What’s the Long Term Investment Outlook?

The 10 year stock market outlook is less certain of course, but consider that Millennials and Gen Z’s will slowly form more families and this is a massive number of people and a high spending phase of their lives. Additionally, millions of illegal immigrants flooding into the country in their 20’s to 40’s represents additional market demand. Demand drives prices and economic growth which fuels growth for many of the stocks above.

As interest rates and mortgage rates fall, the business community can enjoy a return to profitability while banks resume normal lending for credit, business and buying homes. The 2024 outlook for the stock market is wonderful!

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