You no longer have to wonder when will the stock market crash start. The stock market crash started already – you just don’t know it yet. Charts show that a 2024 stock market crash has started. The S&P 500 crash that started two weeks ago will continue. The only question now is whether this SP500 crash will be a short term stock market correction, or whether this will turn into a prolonged bear market like we saw in 2022.
The stock market has already started crashing – you just don’t know it yet. On the surface, the stock market appears to continue to be extremely bullish. The number one gauge for Wall Street, the S&P 500, is nearing a record high. But under the surface, there’s a problem. The small cap Russell 2000 index has already started to fall and is trending lower. I’m Stock Curry, I’m a former Merrill Lynch and Morgan Stanley investment banker, I have over 25 years of trading experience, and there’s an old saying that where the Russel goes, the stock market will eventually go also. So let’s talk about how much the stock market might fall, how long this crash might last, and how you can make money even as the stock market does go down.
Recently, the Dow Jones Industrial Average hit a record high. The S&P 500 is also just 0.3% away from a record high. And investors remain extremely bullish, with the Fear and Greed Index sitting well into the greed stage, and very close to extreme greed. But despite all of the bullishness, there are early signs that the stock market is starting to fall. And it’s not just the Russell 2000. The S&P 500 is also showing signs that it is topped out and is starting to go down. If you look at stock price strength in the S&P 500, this is giving a huge warning sign. Stock price strength is the percentage of stocks reaching new 52 week highs versus new 52 week lows. And every single time we get near this level of around 4 to 5 percent, the market starts to top out and starts to go down. And we’re already seeing the number of stocks hitting new 52 week highs starting to go down, as the number of stocks hitting new 52 week lows starts to go up, which is a very early indicator that the stock market is topped out and is about to crash.
Stock price breath looks at the number of shares that are rising versus the number of shares that are falling. And over the past two weeks, we have seen the number of shares falling start to increase, while the number of shares rising starts to decrease again. This is a very clear indicator that the stock market is topped out and is about to start going back down, as happened throughout all of 2023. So how long might this stock market crash actually last? Well, in 2023, when the stock market topped out in January, we saw the market fall for about a month in February. Then when the stock market topped out again in July of 2023, we saw the stock market fall for about three months. So anywhere from 1 to 3 months is a pretty reasonable time frame unless something bigger happens. Now, this isn’t just some random reason why the stock market is topping out.
There are actually some very good technical and fundamental reasons for this. Take a look at a chart from the Dow Jones Industrial Average going back the past few years, and what you’re going to notice is, even as the Dow Jones rises, it typically follows very closely to the ten week EMA, which is this green line here on the chart. And if you look at the candles on the weekly candles, you’ll see that they are far above that ten week EMA line, indicated by this yellow line that I drew showing the gap. Now the gap is currently running at about 7%, so stocks would have to fall about 7% to fix the overbought situation that we currently have on the Dow. So technically the stock market is overbought and due for a pullback. But how big of a pullback we get will be based far more than just the technicals.
While the technicals will matter in the short term, and possibly give us that 5 to 7% pullback, the fundamentals are what’s going to matter in the long term to determine if we get a 1 to 3 month pullback, or if this is more like a 2022 crash. And one of the biggest factors for the long term fundamentals of the stock market is the Federal Reserve’s interest rates. Right now, the stock market is pricing in five rate cuts this year. And yet the Federal Reserve themselves have only signaled three rate cuts this year. To make matters worse, there’s a possibility there will be no rate cuts this year.
Throughout all of 2023, we saw the stock market rally over extreme hope and optimism about what the Federal Reserve would do, only to pull back in the months after that as the market got back to reality and started pricing in what the Federal Reserve was actually doing. And now with the market pricing in five rate cuts, the Federal Reserve saying three, and possibly less than that, the market has to pull back to price in three rate cuts instead of five. But why do these rate cuts even matter? Ultimately, stocks are priced based upon earnings, and the Federal Reserve’s interest rates have a huge impact on earnings.
The higher the interest rates, the lower the profits of companies, which in turn lowers earnings, which in turn lowers stock prices. The lower the interest rates, the higher the profits companies can report, which in turn increases stock prices. That’s why the Federal Reserve’s interest rates are such a huge factor in how stock prices ultimately go. Now we are in the middle of earnings season. Earnings season officially started on Friday, and some of the banks, some of the largest banks in the world, including JP Morgan Chase, reported earnings on Friday. Unfortunately, those bank earnings looked really bad this quarter. And as earnings continue to come in worse than expected, this will continue to push stock prices lower and lower as they price in these worse than expected earnings. But there’s another problem that the Federal Reserve has beyond just high interest rates.
The Federal Reserve posted its largest ever annual operating loss last year. The Federal Reserve posted a $117 billion operating loss. The Fed didn’t even have a loss in 2008 or 2020, but they did last year, and this is a major problem. Until 2022, the Fed had never in its 109 year history suspended remittances to the Treasury for a meaningful period due to operating losses. The Federal Reserve is supposed to operate at a profit, and the Federal Reserve’s profits are supposed to go into the US Treasury, which is supposed to help pay its bills and reduce the overall deficit. But with the Federal Reserve now running at a loss, that is significantly less tax revenue for the federal government, which really hurts their ability to spend. And the Fed is likely to continue running accounting losses for as long as it holds interest rates above 3.5% and continues to shrink its asset portfolio.
So you might be wondering, why doesn’t the Federal Reserve just lower interest rates in order to start operating at a profit again? Well, it’s important to understand that the Federal Reserve does not focus on profits. That’s not their mandate. The Federal Reserve’s mandate is to get inflation down while keeping the labor market strong, and the Federal Reserve will continue to operate at a loss for as long as it takes in order to get inflation down. But so long as the Federal Reserve does continue to operate at a loss, the losses add to an already large federal deficit, and that has required bigger auctions of Treasury debt. That means the US government is continuing to go into more and more debt, which ultimately is going to force Congress at some point to slow down their spending. And when Congress does slow down their spending, that’s less money being pumped into the economy, which in turn is going to slow down the economy even further, which in turn is going to hurt stock prices even further.
And stock market hopes for a fed rate cut in March might be false. As Fed’s Meister says, March is probably too early for a rate cut. The market’s hope for a Fed rate cut in March started during the December FOMC meeting, when the Federal Reserve said that they were planning three rate cuts in 2024. But that plan came out prior to December’s CPI inflation data. See, the Federal Reserve was expecting inflation to continue to go down. Unfortunately, that’s not what happened in December. Consumer prices rose 0.3%, which was higher than expected, and it pushed the annual inflation rate up to 3.4%. And it is that December CPI report that is causing people to rethink what the Federal Reserve might actually do in 2024.
Federal reserve Bank of Cleveland President Loretta Mester said, “I think the December CPI report shows there’s more work to do, and that work is going to take restrictive monetary policy.” In other words, higher interest rates for longer, and the stock market’s not going to like that, and it’s going to be forced to sell off in order to re-price what the Federal Reserve is actually going to do in 2024. Now, as the economy slows down due to less government spending and as interest rates remain high, which increases inflation, which in turn lowers spending, all of this is causing reduced revenues from companies.
Now, as operating revenues go down, companies are in a bit of a bind. On one hand, they want to continue to grow. They want to help shareholders improve their value. But on the other hand they also have to show profits right now. And what is the best way to show profits right now? Well, it’s to reduce spending. And the easiest way to reduce spending at a company is to lay off employees. If you can lower your headcount, you are now lowering one of your most expensive assets, and that is your employees. And when you lower those expenses, you’re now increasing profits, which shareholders love.
In 2023, over 305,000 people were laid off as companies scrambled to increase profits despite lower earnings. And 2024 is starting off even worse. Amazon, Google, Duolingo, and others have cut hundreds of jobs just in the first two weeks of the year. Twitch, a live streaming site owned by Amazon, announced they plan to cut 35% of their staff. The same day, Amazon also announced plans to cut several hundred employees at its Prime Video and MGM Studios divisions. On Wednesday, Google laid off hundreds of employees across several divisions, and language learning app Duolingo slashed 10% of its contract employees.
AI startup Humane also said this week it would cut 4% of its workforce, while the Discord CEO announced this week its platform would cut 17% of its workforce, and video game software developer Unity announced that they would be cutting 25% of their workforce. And all of this has occurred just in the first two weeks of the year. Companies are scrambling to increase profits by laying off employees. And while this might be good for short term profits, it really hurts the economy in the long term, which in turn is really going to hurt company profits in the long term as well.
So the question of whether we get a technical pullback of between 5 and 7 percent, as the market needs from a technical point, just from being overbought, or if we get a much larger crash like we did in 2022, is really going to depend upon when the Federal Reserve actually does start cutting rates, how many rate cuts they do this year, and how many companies do layoffs of their employees. So far, the data shows that it’s not looking too good for the US economy, meaning it’s not looking too good for stocks. And the charts very clearly show that the stock market is already starting to crash. You may not know it yet, but it definitely has started. The only question now is how far do stocks fall and for how long?
Now despite all of this, there are some very easy ways to make money in the stock market as the market goes down. On Friday alone, I made a number of trades which made huge profits by trading put options. I made a 148% profit, followed by a 105% profit, followed by a 63% profit, followed by a 71% profit. And best of all, I post all of my trades in my discord so that you can follow along. In my discord, I post when I buy, when I sell, when I add on, what my stop losses are, and take profits are. I show you my wins, my losses, my profits. All of it right there in the discord so that you can copy my trades. To join the discord and start making money with me as the market goes down, just visit the discord page. You’ll learn why I’m making the trades, so that you can then go out and find your own trades as well. So come join us in the discord. I’d love to have you in there.