The U.S. Stock market is due for a pretty big stock market crash if things continue this way for longer due to several headwinds including civil unrest and a struggling economy.
So many NASDAQ stocks have soared to all-time highs without underlying fundamentals backing up high stock prices.
I believe the big October 3rd selloff is just the beginning of a much larger crash that could send stocks even lower than their 2022 lows over the next 6 months.
7 Reasons Why The US Stock Market Will Crash Over the Next 6 Months
1, The Buffett Indicator Shows Stocks Are Overvalued
According to the Buffett Indicator, the US stock market is grossly overvalued. Whenever the Total US Stock Market value is much higher than the US GDP, that’s a massive signal to prepare for a stock market correction.
2.. Student Loan Debt Payments Will Force Retail Investors to Sell Their Investments
The 3-year student loan interest hiatus ended on October 1st and now 40 million Americans must pay interest on their student loans. Many will be unable to make payments or be forced to sell their investors to pay off their student loans.
3. Rising Bond Yields Are Too Attractive to Investors Sitting on Cash
When bond yields rise, investors can get up to 5% yields without any risk due to bonds being backed by the US government.
Why risk your money in the stock market when you can earn a guaranteed return?
Stocks must correct due to higher interest payments in the future and a higher cost of capital.
4. Rising Interest Rates Could Bankrupt Dozens of Publicly Traded Companies
If the Fed continues raising interest rates then dozens of companies on the stock market will go bankrupt. Many of these soon-to-be bankrupt companies are SPACs that didn’t get a chance to make it in the first place.
As bankrupt companies pile up, investors will run for safety towards defensive stocks and safe investments like treasury bonds and money market funds.
5.A 2024 Recession Looks Almost Certain
Most people live paycheck to paycheck, and I don’t see the global economy turning around anytime soon. If a recession is confirmed, then the stock market won’t perform well during a GDP contraction.
6. Struggling Investors Will Sell At the Bottom of the Market to Pay Their Bills
Retail investors are known for buying tops of the market and selling at the bottom. As investors watch their investment portfolios shrink, there will be a ton of panic selling to raise cash for paying bills and/or emergency funds.
7. A Stock Market Bottom Could Happen Once Interest Rates Reverse
RIght now, the Fed has caused a big mess due to raising interest rates too quicly to curb inflation.
US President Joe Biden saved the US government from defaulting on its debts in June 2023 by raising the debt ceiling but that won’t save the stock market.
Most Americans are broke and tough times aren’t a good sign for stocks. Expect more losses over the next 6 months until the Fed lowers rates.
How to Protect Your Portfolio During a Stock Market Crash
- Hedge your portfolio using put options to mitigate downside risk. Buying puts on your stock positions will limit losses without triggering capital gains taxes with a stock sale.
- If you are losing in a stock position, then consider selling your shares at a loss to take advantage of tax loss harvesting. Buy back your shares on January 1st to lessen your tax bill.
- Buying SPY or QQQ puts allows you to profit when the entire stock market crashes.
- Avoid risky stocks with terrible balance sheets and stick to companies with lots of cash on hand to weather a potential recession.