Economists at Charles Schwab note that current market conditions are becoming more similar to those in 2021, the year before stocks last deteriorated.
The bank’s investment analysts warned of problems caused by the growing disconnect between individual stocks that perform poorly and indices like the S&P 500 that succeed.
“If we continue to see more weakness in the former and strength in the latter, it will start to eerily mimic the dynamics of 2021,” wrote Liz Ann Sonders, who has been Charles Schwab’s chief investment strategist for 24 years, in a Sept. 24 article. of June. market commentary.
The rise of tech stocks has taken both the S&P and Nasdaq to record highs, but as Sonders points out, most of the companies in these two indexes don’t reflect the out-of-this-world performance of a company like Nvidia, which recently became in the most valuable company in the world.
The percentage of S&P stocks trading higher than the last fifty trading days has plummeted to around 50 percent, when it was closer to 90 percent in early 2024.
Liz Ann Sonders, chief investment strategist at Charles Schwab, has issued a warning to passive investors riding the S&P 500 to record gains. It probably won’t be like this forever and a bearish correction could be around the corner.
“That was the case in the second half of 2021, which in retrospect correctly signaled that the market would no longer be able to keep up with the index, leading to a bear market in 2022,” Sonders wrote.
The S&P contracted 18.11 percent in 2022, according to Forbes. The index actually bottomed in late September and is up more than 50 percent to where we are today.
If the same scenario repeats itself sometime in 2024 or 2025, Americans could see their net worth decline substantially as much of their retirement accounts are fully invested in tech indexes like the S&P.
Wall Street professionals are also concerned about the stranglehold that the blue-chip stock giant has over the entire market.
As of June 7, just three US stocks – Microsoft, Nvidia and Apple – accounted for more than 20 percent of the S&P’s value for the first time since 2000. market clock reported.
And the year 2000 is a significant year because it was when the dotcom bubble burst, ending… about 5 trillion dollars in wealth in its path.
This means that if even one of these companies (heaven forbid all three) falls into the red, it could send one of the world’s largest indexes into a tailspin and erase years of positive wealth accumulation for millions of Americans.
In recent weeks, top bankers and even a prominent former retail CEO have issued chilling warnings about the U.S. economy.
In May, Jamie Dimon, head of the world’s largest bank, JPMorgan Chase, said that the worst result for the American economy It would be “stagflation.”
This is when inflation It continues to rise, but unemployment is high and growth is slowing.
Stagflation, last seen in the United States in the 1970s, is considered worse than a recession by economists. It would send stocks tumbling, hitting 401(K) plans and other retirement savings.
Other economists like Sam Stovall, chief investment strategist at CFRA Research, also say stocks won’t continue to rise, or at least there will need to be a correction before they rise again.
“I’m increasingly concerned that we may have to endure another decline of 5 percent or more before the year is out,” Stovall said in June.
The last time three stocks accounted for more than 20 percent of the S&P 500 was in 2000, when the dot-com bubble burst and wiped out trillions of dollars in wealth.
Others still predict a recession of epic proportions, which could eclipse that of the 2007-2008 financial crisis.
Meanwhile, the US economy’s fault lines are “on the verge of breaking down,” was the stark warning from one of America’s top retail CEOs, Bob Nardelli.
The former Home Depot and Chrysler boss says the Biden administration’s policy mistakes could create significant challenges for the next president.
“What I have seen over the last three and a half years is that a series of debacles and missteps have put tremendous pressure on the failings of our economy, and it is about to crack,” Nardelli said. .
“So, I would say, we are going through a difficult time.”