In the United States, the stock market has been performing exceptionally well this year. On Wednesday, May 22, the S&P 500 index and the tech-heavy Nasdaq closed at historic highs. As of around 3 p.m. Eastern Time on Tuesday, the U.S. stock market had risen about 11% so far in 2024. However, economists point out that there are still three major risks facing the stock market.
David Rosenberg, founder and president of economic consulting firm Rosenberg Research & Associates, highlighted three primary risks at the CNBC Financial Advisor Summit on Wednesday. These include Federal Reserve policy, the possibility of an unexpected economic downturn, and corporate earnings falling below expectations, all of which pose significant threats to the stock market.
Market analysts at the summit noted that semiconductor manufacturers have played a significant role in driving the stock market higher. Rosenberg mentioned that NVIDIA is a key player in the surge, particularly in the field of generative artificial intelligence, leading the final phase of this bull market with its stock rising by 90% in 2024 so far.
Brandon Yarckin, Chief Operating Officer at Universa Investments, stated during the summit that with increasingly positive market sentiment, NVIDIA is undoubtedly a prime example.
Rosenberg cautioned that disappointing earnings results from such companies could potentially lead to a downturn in the stock market. Drawing parallels to the dot-com bubble of 2000, he highlighted how Cisco’s lack of profitability marked the end of the technology frenzy at that time.
Moreover, Federal Reserve policymakers have raised interest rates to their highest levels in two decades. It remains uncertain when the Fed will begin lowering borrowing costs; many market forecasters anticipate at least one rate cut before the end of the year.
Rosenberg noted that higher interest rates have boosted returns for investors from cash and money market funds, offering potential gains of up to 5%. He emphasized that maintaining higher rates over the long term gives an advantage to cash and money market funds in terms of risk-return compared to stocks.
Despite the high borrowing costs and a gradual decline in inflation, the U.S. economy remains robust, leading many experts to predict an economic “soft landing.”
However, Rosenberg cautioned that an unforeseen economic downturn would pose a major “black swan” threat to the stock market.
Carla Harris, a Senior Client Advisor at Morgan Stanley, highlighted at the summit that unexpected events and uncertainties in the economy and geopolitics are two things investors dislike the most.