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Are Stocks Preparing to Drop?

Oct 24, 2023

I'm Coy Wells for U.S. Money Reserve. The stock market has seen a lot of volatility in the last ten months. By the start of October, a series of drops that began in the latter part of the summer had erased all the gains the Dow Jones Industrial Average made in 2023. Other stock indices aren't faring much better. In September 2023 alone, the S&P 500 fell 5%.

Much of this distress has been credited to high interest rates and overvalued stocks, and analysts are predicting that the stock market troubles are just beginning. Billionaire Bill Gross, former chief investment officer of Pimco, agrees that current stock prices are overvalued. In a note published on October 4th, 2023, Gross wrote that unless Federal Reserve Chairman Jerome Powell and the Federal Reserve can significantly lower real ten year Treasury rates from 2.25%, consumers may eventually realize that bonds are a better deal than clearly overvalued stocks headed into an economic slowdown or recession.

Marko Kolanovic of J.P. Morgan says stocks could fall as much as 20%. Appearing on CNBC's Fast Money on October 5th, Kolanovic said that high interest rates are creating breaking points for stocks. Analysis by Business Insider indicates that the S&P 500 could drop even further, as much as 50%. The publication points to the valuation of stocks relative to debt, represented by corporate bonds, as an indicator of a pullback.

According to the analysis, the last time the S&P 500 reached these highs relative to corporate debt was the height of the dot-com bubble in spring of 2000. After this peak, the S&P 500 fell 50% from March 2000 to October of 2002. Likewise, equity risk premium, an indicator based on the measure of stock market prices against bond market prices, also indicates that stocks are overvalued.

On October 7th, 2023, research firm Macro Edge wrote equity risk premium is near its worst level going back to 1927. In the six instances this level of overvaluation has occurred, the market saw a major correction, recession ,or depression. With all the analysis pointing to economic volatility, consumers may be looking for ways to protect their wealth and shore up their portfolios.

Physical gold has long been considered a safe haven asset for its ability to hedge against the ups and downs of the stock market and serve as a store of wealth in times of both volatility and uncertainty. To learn more about the benefits of owning physical gold and to receive your free gold information kit, call U.S. Money Reserve and speak to one of our dedicated account executives today.

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