September to remember or to forget? Here are things working for and against the stock market
The market's recent overbought conditions have raised concerns about potential downturns, particularly for mega-cap stocks.
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Posted 9/4/2023, 2:58:31 PM
cnbc.com
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U.S. equity markets experienced a downturn this week due to concerns about inflation, Federal Reserve statements, and trade tensions, with real estate equities and other yield-sensitive sectors particularly affected by rising interest rates, although hotel REITs rebounded due to improved forecasts for major hurricanes.
The bullish and bearish narratives in the market are clashing over whether there will be a soft landing or economic problems in the future. The battle over the economy and concern over inflation will be the primary issue for the market in the coming months.
The recent decline in the price of Bitcoin has raised concerns of a larger market downtrend, with Ethereum and Ripple also at risk of falling if Bitcoin weakens further.
Despite economists giving the all-clear on a recession, there are still several red flags suggesting a downturn may be imminent, including an uncertain economic outlook, declining consumer confidence, maxed out credit cards, tightening credit conditions, maturing corporate debt, a manufacturing slump, global economic challenges, an inverted yield curve, and sticky inflation.
Stocks are considered overvalued by Jeffrey Gundlach, who expects a recession to occur in the first half of 2024 due to government overspending potentially leading to an inflationary recession or "stagflation."
Stocks tumbled after the Federal Reserve announced that interest rates will remain higher for longer; however, some analysts believe that the market's reaction was overblown and that higher rates and economic growth could actually lead to higher stock valuations.
Investors should not be overly worried about the potential government shutdown's impact on the market, as historical trends indicate that any weakness will likely be a buying opportunity from a short-term trading perspective.