Donald Trump is unlikely to get his wish for a US stock market crash this year.
I'm referring to the former US president's comments last week that he expects the market to crash in 2024, because if he is elected in November and takes office within a year, he doesn't want to be another Herbert Hoover. Hoover was president when the stock market crashed in 1929.
The stock market has crashed in two of the last four presidential election years, so it's understandable why one might worry about a repeat of the situation in 2024. In 2008, in the midst of the global financial crisis, the S&P 500
SPX
lost 38.5% in the year. In 2020, when the economy ground to a halt due to the COVID-19 pandemic, the S&P 500 lost 34% in just over a month.
Of course, an accident is possible at any time, so an accident this year cannot be ruled out. However, the odds of anything happening this year are significantly lower than average. That's according to the last one"US State Street Foam Forecastsโ, which stem from accident research conducted by Robin Greenwood, professor of Banking and Finance at Harvard Business School.
In that investigation, Greenwood and his co-authors discovered that it is possible to identify when there is a high probability of an accident. In an interview, Greenwood said that โthe odds of collapse are lowโ right now, not just for the market as a whole but also โacross the boardโ for individual sectors of the market.
Greenwood's model is based on a number of factors, such as performance over the past two-year period, volatility, stock turnover, IPO activity, and price trajectory over the past two years. For example, he and his fellow researchers found that when an industry outperforms the market by 150 or more percentage points over a two-year period, there is an 80% chance it will collapse, which they define as a drop of at least 40%. for the next two years. As you can see in the accompanying chart, State Street reports low crash probabilities for all sectors, in each case well below the average predicted crash probabilities over the past five years.
These odds don't mean stocks will have a great year in 2024. A new bear market could begin this year without the decline meeting researchers' definition of a crash.
However, the bottom line from State Street's foaming US forecasts is that there are bigger things to worry about this year than the possibility of a collapse.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be contacted at mark@hulbertratings.com
Further: Trump says he expects market to crash in 2024 under Biden: 'I don't want to be Herbert Hoover'
