How far could America’s stockmarket fall?
This article discusses a recent downturn in the U.S. stock market after a period of significant gains, specifically noting a major drop in Nvidia's share price despite no immediate bad news. It attributes the market's nervousness to high stock valuations and the realization that interest rates are likely to remain elevated, which makes stocks less attractive compared to government bonds. The cyclically adjusted price-earnings (CAPE) ratio is highlighted as being exceptionally high, similar to levels seen before previous market crashes, suggesting low expected future returns for stocks. The gap between the earnings yield of stocks and real yields on government bonds is currently narrow, indicating a lower risk premium, which historically suggests a potential for significant market corrections. Despite some optimism that earnings could grow, possibly fueled by advancements in artificial intelligence, the article suggests caution, as historically low earnings yields have tended to predict poor returns.
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The expectations for increased rates will continue to stabilize our economy, however a financial crisis is always unlikely. Once Powell cuts rates we can be optimistic that the economy will continue to grow.
ReplyDeleteWhat if the rate cut does not happen sometime soon?
DeleteHow does the article explain why some investors are feeling nervous about the recent performance of the U.S. stock market, and what does it suggest about the future of stock returns?
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DeleteThe article explains that some investors are feeling nervous about the recent performance of the U.S. stock market due to concerns over rising inflation and interest rates. These worries stem from the Federal Reserve's potential actions to address inflation, such as raising interest rates, which could negatively impact stock prices and corporate earnings. In terms of the future of stock returns, the article suggests that while short-term market volatility may persist, investors should maintain a long-term perspective. Historical data indicates that despite fluctuations, stocks have generally yielded positive returns over time.
I believe that the stock market will keep falling as the numbers that came out this quarter were not promising for the overall economy. I think that we could see a recession in the next two quarters, which would drop the stock market prices significantly.
ReplyDeleteThe experts predict that the price will go down as well, but AI could play a significant role in potentially steering things in the opposite direction.
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