The US stock market, characterized by its volatility and cyclical nature, often raises questions about its future direction. As 2024 unfolds, investors and analysts are increasingly concerned about the potential for a market downturn. Various economic indicators suggest that the bullish run seen in recent years may face significant headwinds.
Here, we delve into five critical factors that could drive a decline in US stock markets in 2024 and highlight three US stocks that could remain resilient amidst these challenges.
Reasons for a Potential US Stock Market Decline
1. Higher for Longer Interest Rates
The Federal Reserve’s monetary policy remains a pivotal factor in determining the market’s trajectory. Recent economic data indicates that inflationary pressures are persisting, compelling the Fed to maintain higher interest rates for an extended period. Business activity in the US has reached a two-year high, with S&P Global’s Composite PMI Output Index hitting 54.4, signaling rising price pressures in the manufacturing sector. This scenario could delay any anticipated rate cuts, adversely impacting business activities and, consequently, corporate earnings. Higher interest rates increase borrowing costs for companies, reducing profit margins and potentially leading to lower stock valuations.
2. Rising National Debt
The US national debt has surged to an alarming $34 trillion, raising concerns among economists and market analysts. This debt-fueled growth is unsustainable, with consumers increasingly relying on savings, now at their lowest levels since 2022, and resorting to credit. Credit card delinquencies are on the rise, with one-fifth of credit card holders utilizing 90% of their limits in Q1 2024. The overall delinquency rate stands at its highest since 2011. If interest rates remain high and any external economic shocks occur, such as escalating oil prices due to geopolitical tensions, the US stock markets and economy could experience significant downward pressure.
3. Slowing Labor Market
The labor market is showing signs of deceleration, a potential harbinger of economic slowdown. Firms, particularly small businesses, are hiring at a slower pace, with hiring intentions at their lowest since 2016. The unemployment rate has risen from 3.5% to 3.9%, indicating a weakening job market. State-level data also shows a sharp increase in unemployment from 2023 to 2024. While the labor market remains relatively stable for now, a continued downward trend could dampen economic sentiment and investor confidence, contributing to a US stock market decline.
4. Shifting Consumer Sentiment
Consumer sentiment plays a crucial role in market dynamics. According to the Michigan Index of Consumer Sentiment, consumer confidence plunged by 10.5% in May, hitting its lowest level in five months. Inflation expectations are also rising, with consumers anticipating price increases of 3.3%. Negative consumer sentiment can lead to reduced spending, impacting corporate revenues and earnings. As consumers become more cautious, the US stock market could face increased volatility and potential declines.
5. Recession Risks
Despite diminishing talks of an imminent recession, underlying economic indicators still point to potential risks. The Leading Economic Index (LEI) has been on a downward trajectory, historically a reliable predictor of recessions. The LEI fell by 0.6% in April 2024 and 0.3% in March 2024. Additionally, the inverted yield curve, which has predicted recessions since the 1950s with only one false positive in 1966, remains a concern. The percentage of banks tightening lending standards has also increased, reflecting cautiousness in the financial sector. With a significant portion of consumers living paycheck to paycheck and many unable to cover unexpected expenses, the economic outlook remains precarious.
3 Best US Stocks to Buy Before a Market Fall
Despite the potential challenges ahead, certain US stocks stand out as promising investments. These companies are positioned in high-growth sectors that could weather economic downturns and continue to thrive.
1. Oracle (NYSE: ORCL)
Oracle has successfully transitioned from a provider of discrete software products to a formidable player in the cloud services market. In its fiscal year 2023 report, Oracle’s cloud services accounted for 82% of its $49.9 billion revenue. The company’s cloud infrastructure and AI capabilities are expected to drive significant growth. Oracle’s recent quarterly results are promising, with CEO Safra Catz highlighting record sales contracts for cloud infrastructure. The firm’s cloud unit generated $2 billion in Q4 and is projected to grow by 50% in fiscal year 2025. Oracle’s shares have risen by 29.1% year-to-date, making it a robust choice for investors.
2. Advanced Micro Devices (NASDAQ: AMD)
Advanced Micro Devices is a key player in the competitive AI chip market. While Nvidia currently dominates, AMD’s Instinct MI300 GPU accelerators, introduced in 2023, have quickly become its best-selling product. AMD expects to generate $4 billion from the MI300x in 2024 alone. The company unveiled a newer version of its Instinct AI processor series, the MI325X, which, although trailing Nvidia’s upcoming chips, underscores AMD’s commitment to the AI market. With increased competition benefiting consumers and enterprises, AMD remains one of the best AI stocks in the market.
3. DraftKings (NASDAQ: DKNG)
DraftKings has evolved from a fantasy sports platform to one of the largest sports betting companies in the US. Despite currently being unprofitable, DraftKings is on a growth trajectory. In Q1, revenue grew by 53% to nearly $1.2 billion, with monthly unique payers increasing by 23% to 3.5 million. The company’s per-customer acquisition costs have fallen by over 40% in the past two years, enhancing its margins. The global online sports betting market, worth $54.6 billion, is projected to grow at a compound annual rate of 10.5% through 2032, reaching $142.6 billion. This growth potential makes DraftKings a compelling stock to watch.
Final Thoughts
The US stock market faces several potential headwinds in 2024, including prolonged high-interest rates, escalating national debt, a slowing labor market, shifting consumer sentiment, and persistent recession risks. However, by focusing on companies in high-growth sectors such as cloud services, AI technologies, and online sports betting, investors can find opportunities for resilience and growth. Oracle, AMD, and DraftKings stand out as promising stocks that could navigate economic uncertainties and offer robust returns. As always, investors should stay informed and consider a diversified approach to mitigate risks and capitalize on market opportunities.