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The U.S. stock market has been experiencing significant gains, with the S&P 500 and Nasdaq stock indexes closing at record highs on Tuesday. However, David Rosenberg, founder and president of Rosenberg Research & Associates, has identified three primary risks that could impact the market’s current trajectory: Federal Reserve policy, the potential for a surprise recession, and disappointing company earnings.
Despite the strong performance, with the S&P 500 and Nasdaq up about 11% each so far in 2024, Rosenberg cautions that these gains could be tempered by several factors. Nvidia, a major player in the artificial intelligence chip market, has been a significant driver of the stock market’s recent rise, seeing a 90% increase in 2024 alone. However, any disappointing earnings results from Nvidia could lead to a market downturn, reminiscent of the dot-com bubble burst in 2000, when missed earnings by Cisco signaled the end of the tech mania.
Rosenberg also pointed out that the Federal Reserve’s current policy of high interest rates, aimed at controlling inflation, poses a risk. With interest rates at their highest levels in two decades, the market is uncertain about when the Fed might start to lower borrowing costs. Higher rates have made cash and money market funds more attractive, offering potentially around a 5% return, which could shift investor preference away from stocks.
Additionally, while the U.S. economy has shown resilience amidst high borrowing costs and gradually falling inflation, the possibility of an unforeseen recession remains a significant threat. A sudden economic downturn could catch the market off guard and have substantial negative impacts.
Experts advise long-term investors to remain steadfast despite potential market fluctuations. Raj Dhanda, a partner and global head of wealth management at Ares Management Corporation, emphasized that the wealthiest and most successful investors tend to stay invested through market volatility, reaping the benefits over the long term.
