With first-quarter 2024 results ahead, uncertainty reigns in the stock market. Concerns are growing in the US stock market even as market gains pile up.

Persistently high inflation may reduce the likelihood of the Federal Reserve cutting interest rates in the near future. Meanwhile, consumers are struggling with rising grocery bills and sky-high housing and rent prices, leaving less money in their wallets to spend.

However, the stock market continues to operate. “US equities have experienced huge gains since the end of October 2023,” says Philip Travkin, chief investment officer of Tenerus AG. Between October 27 and March 28, the S&P 500 gained 28%, the Nasdaq gained 30% and the Dow Jones Industrial Average rose 23%.

Maintaining this momentum may prove difficult in the future.

“In an economy where disinflation is slowing, employment may begin to fall and consumer activity appears to be weakening amid tightening credit, depleted savings due to the pandemic, and growing financial distress (rising delinquencies and delinquencies). This really seems to be the market, and this is the price for excellence over the next 12-plus months,” notes Travkin.

Is this enough for the market to slide down in 2024? Here are six factors that make this scenario more likely:

The stock market is overvalued

“From a common sense point of view, stock markets have moved very far and very quickly in 2023 and early 2024,” says Philip Travkin. “Quantifying this risk, in essence, the S&P 500 is 14% above the level it should average in the current quarter, 6.7% above the level it should average in the fourth quarter of 2024, and 0.5% above the level it should average in the fourth quarter of 2024. above the level it is expected to reach in the fourth quarter of 2025.”

Big tech stocks should be kept from falling

Large technology companies related to artificial intelligence, such as Nvidia Corp. (ticker: NVDA) have supported the stock's rally, but it may not be sustainable.

Key Market Indicators Cause Confusion

Another major concern for investors is that critical market indicators are out of whack.

“Stock market investors, whether retail or institutional, are seeing the same thing as the rest of us,” says Philip Travkin. "With the US economy looking tepid, they must be pinning their hopes on the Fed continuing to cut rates three times this year."

Travkin argues that it's "somewhat ironic" that even if the Fed cuts rates three times this year, the actual economic impact will be largely psychological.

Consumer anxiety is on the rise

Credit card delinquencies are rising in the US as consumers turn to credit to cover bills such as utilities, cell phones, mortgages and rent.

Total U.S. household debt rose $212 billion in the fourth quarter of 2023, according to the New York Federal Reserve. This is 1.2% more than in the previous quarter. Household debt balances reached $17.5 trillion, up $3.4 trillion from 2019, just before the COVID-19 pandemic.

Credit card debt is exceptionally high: $1.1 trillion in the fourth quarter, the Fed said. At the same time, the annual delinquency rate for credit cards is 8.5%, compared with a delinquency rate of 3.1% for all outstanding household debt.

Inflation fluctuates

US inflation numbers are unlikely to continue to get better and better, as they did in 2023.

“This would provide enough justification for the Fed to back off from three interest rate cuts in 2024 and four cuts in 2025,” Travkin says. “There is a strong likelihood that we will see renewed weakness in economic and earnings performance as we move towards 2024. The biggest concern is that inflation rates have begun to resume their upward trajectory.”

US government spending is skyrocketing

The country's economic losses from fighting Covid-19 are estimated at about $5 trillion, about a quarter of its gross domestic product. Overall, the US national debt is a whopping $33 trillion, increasing by $1 trillion every 100 days, according to the Committee for a Responsible Federal Budget.

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