Major banks warn of imminent stock market correction

Though the stock market has been doing incredibly well in 2024, with numerous experts predicting ever-higher highs both for individual successful stocks such as Nvidia (NASDAQ: NVDA) and for benchmark indices such as the S&P 500, some cracks have been apparent for months.

By July 9, multiple major banks and similar prominent institutions have taken to warning of a looming correction – a correction with the potential to turn into a full-blown crisis – as issues such as overconcentration, growing transfer of wealth to the rich, loss of temporary service jobs, and others have started pilling up.

This Monday, for example, Goldman Sachs (NYSE: GS) traders have become wary of what is too come as they explain that analysts and investors – including themselves – are overly bullish. 

The danger of a weaker August will be particularly shart should the upcoming earnings reports fail to meet expectations.

Experts foresee a significant correction in the coming months

Other entities have been more specific, with Morgan Stanley’s (NYSE: MS) Mike Wilson predicting an unstable third quarter (Q3) and a high likelihood of a correction at some point between July and the November elections.

Also on Monday, Jonathan Krinsky, chief market technician at BTIG, issued a note warning of a possible 20% correction in the near future. The expert noted the relatively narrow participation of stocks in the ongoing rally as a major area for concern.

The strong concentration of 2024 gains within just a handful of mostly tech, mostly artificial intelligence (AI) companies has been widely discussed in recent months.

Fear and loathing in the U.S.

It is likely that the numerous warnings of instability that have been issued stem from a string of factors, including the unexpectedly strong stock market performance in a high interest rate environment, the incredible rise of a select few stocks that gives the feeling of a bubble, and general concerns over the cost of living. 

Several well-regarded recessionary indicators have also been flashing of late, and the Buffet ratio – a ratio that compares the total market capitalization of public companies with the Gross Domestic Product (GDP), popularized in a turn-of-the-century Warren Buffett interview – is, at press time, well above the Dot-com and 2008 levels.

The upcoming presidential elections are also adding uncertainty. On the one hand, 16 Nobel laureates have recently endorsed President Biden and his economic plan while denouncing Trump as preparing the road toward a recession.

On the other, the International Monetary Fund (IMF) has been issuing repeated dire warnings about America’s unsustainable economic and fiscal policy – a policy that has been overseen by the Biden administration for more than three years.

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