For the most part, U.S. stocks were trading at a fever pitch throughout the first quarter of 2024, only to enter a deep and violent correction in April.
Nowhere is this shift in trend more apparent than with the benchmark Dow Jones Industrial Average (DJIA) index, which – despite trading at record highs mere months ago – is now dangerously close to turning red in the year-to-date (YTD) chart.
Still, the most shocking moves – just as was the case during the rally – came from the largest, universally big tech, companies.
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Much as they have – in concerning similarities with the 1929 market – accounted for much of the rise, their losses now contribute significantly to the massive $1.3 trillion wipe that hit U.S. stocks over the course of the last 5 trading session.
What is next for U.S. stocks?
In a nutshell, the jury is still out on whether the April correction is the entryway to a deeper pit or merely a temporary setback. The uncertainty of the future only becomes greater as the height of the earnings season draws near.
Still, there are some signs indicating that, in the short-term, more losses are likely. For starters, the initial round of Q1 earnings reports did little to stem the red tide in the stock market.
Additionally, prominent stock market analysts such as Jim Cramer have warned investors that taking a long position is not wise at present time as the market has more room for dropping.
Cramer also explained that an exceptionally bloody opening during which investors are keen to dump stock no matter the cost will be the surest sign the fall is near its end.
On the other hand, certain financial giants might have already telegraphed what is next for investors.
A move away from technology?
Earlier in April, Goldman Sachs (NYSE: GS) shared a warning that big tech companies are falling out of favor and explained that the next area of focus will come in the form of Japanese and energy stocks.
While this might come as a surprise given that the technology – and particularly the artificial intelligence (AI) – sector was widely forecast to be the driver of 2024 growth, certain more recent developments provide a solid explanation for the worsening mood in the industry.
Why is big tech falling out of favor?
For starters, the electric vehicle (EV) industry has been hard-pressed, with Elon Musk’s Tesla Motors (NASDAQ: TSLA) presenting the strongest example of its troubles.
To make matters worse, the combination of weak Q1 deliveries and consistent price decreases almost guarantees that the upcoming earnings report will disappoint, possibly truly driving TSLA toward $100.
The semiconductor industry is also facing issues, as exemplified by Nvidia’s (NASDAQ: NVDA) 19.18%, 30-day decline – and the 10% drop in the last full trading day.
While the reasons for the slowdown are many – arguably including the feverish growth in Q1 2024 – the industry is also facing artificial demand issues.
Indeed, while the chipmakers have reached compromise agreements with the U.S. government on shipments to China, it has been widely publicized for months that Chinese companies are only begrudgingly buying downgraded semiconductors.
It is arguably only a matter of time before they opt for buying inferior domestic chips over inferior foreign products.
Additionally, it may also be only a matter of time before China stops producing inferior semiconductors as it both has the capacity to catch up in the mid to long-term and – with the new restrictions – a strong incentive to accelerate the process due to the restrictions.
Finally, for all the growth it offered in the previous 18 months, the AI industry has recently turned somewhat less exciting.
For example, multiple long-standing issues – such as ChatGPT frequently gaslighting users as it offers dubious information – persist while, simultaneously, there has been a notable lack of concrete new use cases for the technology or, at the very least, sustainable proposals for significant short-term profit growth.
Indeed, the most recent use cases for AI were offered by the military – both in live operations and tests – and by Tesla’s self-driving technology. The latter, unfortunately, has been forced to dwell under a strong shadow of a doubt given that its rollout coincides with Elon Musk’s EV maker recalling nearly 4,000 Cybertrucks over faulty accelerators.
Recession or recovery ahead?
Compounding the current slowdown and correction are the growing fears that the U.S. is headed into a crisis. On the one hand, multiple analysts and experts are forecasting a calamity in either 2024 or 2025 – after the elections – amidst a string of dangers, including high inflation, possible AI-driven stock market bubble, suffocating interest rates, cost-of-living, and other factors.
The climate is also exemplified by the ever-changing stance on whether rate cuts are coming, with the market moving from forecasting as many as six in 2024 to openly considering hikes before the year is out.
The fears – centered both on the stock market itself and the broader geopolitical concerns – are also evident in the rise of flight-to-safety assets such as gold.
Gold has been showing particular strength in 2024 to the point that the commodity is now forecast to hit $3,000 before the end of the year – a significant new record price.
Still, it is worth noting that the market retains a fair share of bulls such as ‘The Big Short’ investor Steve Eisman, and there is no broad consensus that a crash is imminent.
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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
