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Should we prepare for the stock market crash?


Shares are expected to rise today, with all three US market indices in positive, but the reliability of one-day growth does not look like an upward trend. And while these upswings will be welcomed by both investors and speculators, the question I keep getting from readers, viewers, subscribers, customers and even ordinary people is: should we prepare for a market crash with growing talk of a recession?

We now have a perfect storm of threats to the stock markets, which explains why the Nasdaq has fallen 22% since last November. The S&P 500 fell about 14% and the Dow fell 10%, so we either had a shake-up (which is a buyout) or a prelude to a stock market crash.

Here are the reasons why you may be afraid of failures:

1. The war in Ukraine fuels inflation and slows global growth, in particular, affecting oil and food prices.

2. China continues to close and it is not good for global growth. This increases the cost of imported materials into production worldwide and also makes consumer goods more expensive. All this is another bad development for the already too high inflation.

3. The Fed is going to raise interest rates by 0.5% this week, and there is a fear in bond markets that too much raising rates could cause a recession in the US.

Okay, this is crazy, bad and dangerous stuff, but what do we have to say that this past sell-off has made the US overbought market more realistically valued, and the prospects could be more rosy than Doomsday traders would see? Here is a positive case:

1. Data show that inflation in the US is peaking.

2. Revenues in the US were better than expected – 55% of US companies S&P 500 reported earnings for March, and 81.3% exceeded expectations against the norm by 76%. Consensus earnings expectations for the quarter moved to 7.9% year on year from 4.3% at the beginning of the reporting season.

3. Shane Oliver of AMP Capital says: “China has seen some slowdown in the number of new Covid cases, but there are still restrictions, including in Beijing, that threaten Chinese growth and commodity prices and contribute to disruptions in the global supply chain. However, its blockades are likely to be relatively short, and the April meeting of the Politburo was a signal of greater impetus to achieve growth goals.

4. It may be too optimistic, but I believe that a peace agreement with Ukraine may appear in the next three months, which will bring down oil prices, boost confidence, give a boost to economic growth along with stocks.

5. Finally, these events can put out the fire by fueling inflation, and the Fed can reduce rate hikes or at least introduce them at a slower pace, which excites the stock market.

Currently, most stocks sell out because investors avoid more speculative, fast-growing, tech stocks and other similar stocks in response to expectations of rising interest rates, which lowers the current discounted value of these companies ’future profits. And many are using borrowed funds, so their future stories have become less positive, but many experts believe the sales have been excessive.

This led to the fact that patient long-term investors saw in this sale an opportunity to buy. But is it?

Here’s what Shane Oliver thinks about stocks going forward: “Our baseline option for investment markets is still that recessions in the US, global and Australian recessions will be avoided for at least the next 18 months, and this will allow stock markets to get reasonable returns for 12- horizon of the month “.

And that’s what I consider to be a historically strong evaluator of whether the stock market is going up or down. It’s called the Citi Bear Market Checklist, which has a pretty good track record of considering 18 possible reasons to quit.

On the eve of the dot-com crash in 2000, 17.5 of the 18 indicators flashed red flags stating that the investor should be very defensive.

Of the GFC, 13 of the 18 flashed red, but we were blinded by the fact that rating agencies did not tell us all about secured debt obligations or CDOs, which were debt-based financial products – most notably mortgages – that sold by banks to other banks and institutional investors.

He did not choose the collapse of the coronavirus because no one ever thought a pandemic would end the world economy.

Anyway, the current score is 7.5 out of 18, which tells me we shouldn’t panic too much, worry about an accident soon.

Here are the numbers from marketindex.com:

“The Citi team led by Mert Genk found that stock market-focused indicators, such as the valuation and activity of the initial public offering, show signs of excess at the end of the cycle. It is easy to find signs of overvaluation in global stock markets now, ”Gentz ​​said.

But other measures on the checklist, including corporate profitability and the yield curve, are consistent with early cycles. The overall index is 7.5 out of 18 – and the bank recommends buying dips if the index is below 10. ”

All of this helps me maintain faith in the stock from 2022 to 2023, but I will continue to check out this list!


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