Have you heard something like “the stock market is going to crash in 2024”? Are you wondering if it’s time to sell your stocks? The stock market delivered spectacular returns in 2023, after a poor performance in 2022. Will 2024 be like 2022? Though it’s impossible to fully predict the future, we can still take a closer look at all the discussions going on. In this blog, I’m going to share why some experts believe the stock market is going to tank in 2024 and why there may not be a stock market crash at all.
What is a market crash?
A market crash is when there is a significant and rapid decline in the stock market. Market crashes have occurred on average every 5.4 years since 1945. Some famous stock market crashes were in 1929, 1937, 1974, 2000-2002, 2008, and 2022. We also experienced a brief sharp downturn in 2020. Market crashes are a normal part of market cycles and historically, the stock market has always recovered from these crashes in the long term.
Top reasons why the stock market may crash in 2024
Some economists predict that there could be a mild recession in 2024. Household debt has increased, which may lead consumers to slow down in spending. Job growth and business capital spending have slowed.
China, the world’s second-largest economy, is facing severe internal problems. Their real estate market is in the doldrums and consumer spending is weak. Several countries in Europe are experiencing weak economic activity.
Strong businesses will usually trade at 2 or 3 times the revenue. Yet you have some U.S. tech companies trading at 27 times its revenue!
So should I sell all of my stocks now?The stock market is influenced by many factors such as economic conditions, company performance, and global events. If a market crash is on the horizon for 2024, you may be tempted to pull your money out of the market to avoid any losses. Many experts widely agree to avoid buying or selling stocks based on emotional decisions or rash predictions.
The better questions are: When do you need this money? If it’s not until 15 or more years, you can ride out any stock market fluctuations. If you can’t sleep at night since you’re thinking about a potential stock market crash in 2024, then you may have invested above your risk tolerance.
>> Curious about where your next dollar should go? Download our guide to help you decide!
Counter argument why the stock market will not crash in 2024
Artificial intelligence (AI) is on the horizon to change the way corporations do business, forever. Some argue that AI could mirror the tech boom of the 1990s.
While parts of the U.S. stock market may be overpriced, the stock market in Europe and emerging markets are offering great value.
How should investors navigate investing in 2024?
- Think long term: The stock market is highly volatile in the short term. It is important to stay invested in the stock market for at least 10 years. Stocks should be considered long-term investments. It’s not unusual for stocks to drop around 10-30% in the short term, so if you invest for the long term you can ride out the highs and lows. Historically, investors have rarely lost money investing in the S&P for 20 years. Past results do not guarantee future returns but it does suggest that long-term investing generally does yield positive returns.
- Keep investing: You build wealth over time. Keep investing money regularly. The market is volatile, but if you keep investing small and frequently, it will likely be worth it in the long run. If you maintain your regular investments, even if the stocks fall, you will likely come out on top because at some point those stocks will likely rebound again.
- Be as diversified as possible: The more diversified your investments are, the less likely it is that all of them will crash at the same time. We cannot control the market, but we can control our asset allocation and mix of investments.
- Don’t try to time the market: The stock market is difficult to predict, so don’t try to time your investments based on market conditions.
- Seek professional advice: If you are new to investing, or have questions about your strategy, then you should consider seeking the help of a fiduciary financial advisor.
A certified financial advisor’s take on whether the stock market will crash in 2024It’s good practice to always exercise a cautionary ear towards people who predict stock market crashes. Market timing doesn’t work and it can backfire. If you are always chasing the market then you will be constantly stressed.
Depending on your situation, stock market crashes may work to your advantage. If you’re shopping for jeans, do you prefer to buy them at a regular price or at a 20% discount? If you’re still saving for retirement, you can buy businesses (=stocks) at a bargain during stock market crashes.
Based on a study by Crandall, Pierce, & Company in 2018, stock market declines of -20% or greater recover in less than 2.5 years. This is based on data from 1945 to 2017. So if you’re investing for the long term, stock market crashes may appear as a short blip.
How I’m investing in the stock market in 2024
I expect the stock market to remain volatile in 2024, due to uncertainty around a possible recession and geo-political conflict. I have a high risk tolerance, so I continue to invest my retirement savings in 100% stocks. I do diversify my stock holdings, such that I have exposure to U.S. large, mid, and small company stocks; growth and value stocks; and international and emerging market stocks. To be honest, stock market crashes “excites” me because sometimes it’s a great opportunity to make more money for our clients.
Will the stock market crash in 2024?
While no one can predict the future, we have given you some information to make your prediction about whether the stock market will crash in 2024. If it does crash, remember not to make any rash decisions. If you’re still worried about a stock market crash and are looking for expert advice on your 401(k), IRA, and other investments, schedule a complimentary discovery call with one of our certified financial advisors today.
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.