The U.S. stock market has seen significant gains in 2024, with the S&P 500 and Nasdaq hitting record highs. However, there are three primary risks that could dampen this euphoria. David Rosenberg, founder and president of Rosenberg Research & Associates, highlighted these risks as Federal Reserve policy, a surprise recession, and lower-than-expected earnings from companies. Nvidia, an artificial intelligence chip maker, has been a major driver of the market’s success, with a 90% increase in 2024 alone. However, disappointing earnings from companies like Nvidia could lead to a market downturn.
One major concern is the Federal Reserve’s decision to raise interest rates to combat high inflation, the highest levels in two decades. While many expect the Fed to lower borrowing costs at least once by the end of the year, high interest rates have made cash and money market funds more attractive to investors due to the higher returns. This could potentially shift investment away from stocks and towards safer options. Additionally, the possibility of a surprise recession could pose a significant threat to the stock market, according to Rosenberg.
While uncertainty and surprises are investors’ worst enemies, experts at the CNBC Financial Advisor Summit urged long-term investors to stay the course. Despite the risks and potential threats to the market, it is essential to resist the urge to panic and sell off investments during times of volatility. Raj Dhanda, a partner and global head of wealth management at Ares Management Corporation, emphasized that the wealthiest and most successful investors remain in the markets for the long term. Carla Harris, a senior client advisor at Morgan Stanley, echoed this sentiment, stating that surprise economic and geopolitical events are inevitable, but long-term investors should stay patient.
Nvidia’s quarterly earnings report could provide valuable insights into the health of the stock market and potentially impact investor sentiment. If Nvidia and other companies report disappointing results, it could trigger a similar downturn to the dot-com craze in 2000, when missed earnings results by companies like Cisco ended the tech mania. Federal Reserve policymakers also play a crucial role in influencing market behavior, with the potential to lower borrowing costs later this year. However, the uncertainty surrounding when and how the Fed will act adds to the market’s volatility.
Despite the risks and uncertainties facing the stock market, some factors have contributed to the market’s stability, such as a strong U.S. economy amid high borrowing costs and gradually falling inflation. Many forecasters predict a “soft landing” for the economy, which could bode well for investors in the long term. However, unexpected events like a surprise recession could throw a wrench into these predictions and cause significant disruptions in the stock market. It is essential for investors to remain vigilant and patient during times of market uncertainty, as jumping ship prematurely could lead to missed opportunities for long-term growth and success in the market.
