Where is the stock market headed? The latest stock market analysis might surprise you. While many are expecting a stock market crash October 2023, my stock market prediction for 2023 is a rally through the end of the year, starting with an October stock market rally. Instead of a stock market crash October prediction, my stock market October 2023 prediction, based upon the latest stock market news, shows that the stock market will most likely rally in October due to a number of important issues and key events. The stock market news today shows that the stock market today is much more resilient than previously though. And despite stock market trading sending the market down nearly 5% last month, the stock market course for October should be much more bullish. If you want the stock market explained in a way that’s easy for stock market beginners to understand, pay attention!
I was talking to a good friend of mine this past weekend and he told me how he had started investing in the stock market in order to help provide a secure future for his family. He wanted to build up some retirement savings so that he could retire comfortably when that time did come around. But he also told me that he stopped investing in 2021 when his portfolio started going down and some of his investments were down by about 90%. And what I explained to him is that while it’s true the stock market did go down in 2022 and a lot of the retail stocks that people had invested in in 2021 had gone down significantly as well, he had also missed out on a massive stock market rally in the tech stocks from October of 2022 through about July of 2023.
And the problem with stopping investing is that the stock market may go up or down in any given year, but over time it still goes up. And over the past 30 years, the stock market has risen by an average of 9.7% per year – nearly a 10% annual return per year. But those same fears that caused a lot of people to get out of the stock market in 2021 have started to return after two months of the stock market falling. Anxiety as high as the stock market just experienced its worst month of 2023, with the S&P 500 down almost 5% in September. This caused the market to interfere and one day last week even hit extreme fear.
But what I found so peculiar about the Fear and Greed index is the individual factors that went into this market. Momentum was in fear, which made sense, and stock price strength was an extreme fear, while stock price breadth was also an extreme fear. Even options traders were fearful with more people buying put options than call options. But what I found so peculiar is the fact that the junk bond demand was in extreme greed. Now, this just didn’t make any sense to me. Why would the stock market be in extreme fear, why would the general investment grade bond market be in extreme fear, and yet the junk bond market be in extreme greed? More importantly, what does this mean for stocks?
Well, as it turns out, an iceberg awaits with only 10% of the junk bond market feeling the pinch of higher rates. You see, US companies binged on debt when rates were super low so that they wouldn’t have to swallow the bitter pill of higher borrowing costs down the road. And that strategy has worked out well for most companies in 2023. Basically, companies did the exact opposite of what banks did. Whereas banks loaded up on long term, very low interest rate bonds and that came to bite them in the butt when the Fed started raising interest rates because as the consumers started to pull their money out of the banks, they were forced to sell those long term bonds at huge losses, corporations did a bit of the opposite. They loaded up on low interest debt, expecting the Fed to raise interest rates, not ignoring it like the banks did. And as a result, the companies have a huge amount of loans and now cash on hand at very low interest rates. But there’s a problem.
The problem is that when it comes to corporate debt, it’s not like personal debt. It’s not like your credit cards or personal loan or your mortgage. See corporate debt balloons, meaning your corporate debt that you pull out a company’s loans. They are only good for about five years, sometimes one year, two years, five years, eight years. The term differs, but the point is it’s only good for a certain amount of time and then it all has to be paid back in one lump sum. Now, when that debt has to get paid back in one lump sum, the company usually doesn’t have the cash on hand to just go pay it back. What the company does is they refinance it at whatever the current interest rate is. And when the companies refinance that debt, they have to pay a much higher interest rate.
Now rates have gone up and companies were holding off on refinancing over hopes that the Fed would start cutting rates. But so far, the Fed has not cut rates and that debt is coming due. It’s going to have to get refinanced soon, and that’s the problem. An iceberg could still await corporations if the Fed keeps rates higher for longer. The lagged effect of higher rates has been very pronounced in this tightening episode, since only a small share of corporate debt has been reset so far. All this tells us is that what we have observed so far is just the tip of the iceberg. You see only about 10% of the roughly $1.5 trillion in US junk bond market has seen rates reset this year.
What that means is that 90% of the corporate junk bond debt has not yet been refinanced to the higher interest rates. 90% of the debt is still going to have to get refinanced to higher interest rates. And the longer the Fed keeps rates elevated, the higher those interest rates are going to be, which is really going to hurt businesses because businesses might be able to make payments at that very low 1% or 2% interest rates with no problems. But what happens when businesses start having to pay six, seven, eight percent interest rates? Well, the payments on those loans are suddenly much, much higher, possibly 4 to 5 times higher than where they are now. And that is going to put a serious hurt on companies cash flow.
And as companies have significantly less cash flow, this severely hurts profits and it could cause some companies to go bankrupt. In fact, we’re already seeing small business bankruptcies rising at the worst pace since the pandemic of 2020. And with overall corporate bankruptcies and corporate debts not getting paid off at the highest rate since the great financial crisis, we could be seeing a much larger downturn in the economy in the future should the Fed continue to keep rates elevated like they say they are going to? And that means that any recession we do eventually get could be much worse than people are currently expecting.
So should you be spooked about the market’s performance in October? Well, experts say no. And that’s because while August is historically a down month, and September is historically the worst month of the year for the stock market, October is historically where the stock market bottoms out before going on an eight month rally – with these next few months being some of the best months of the year on the stock market – and that means October is historically the best month of the year to buy stocks. Now so far this year, the stock market has performed exactly like it historically does with the best months of the year rising, the worst month of the year falling so far. The stock market is performing exactly like it historically does, which just helps ensure that October is probably going to be a great month for the stock market.
The reason the stock market normally sells off in September is because the federal budget ends and we have to try to figure out a budget before the government shuts down. That raises a lot of fear of a potential government shutdown. And we usually see stocks sell off in September. But come October, that usually gets resolved and we see stocks rally. And in fact, we did see the budget government shutdown issue get resolved over the weekend. We’re already seeing stock market futures going up. We’re already seeing crypto up 4%. We should see a rally on Monday and quite possibly for the rest of this month and even the rest of the year.
But I do want to warn you that past performance is not a guarantee of future performance. So just because the stock market historically rallies through the end of the year does not guarantee it will do it this time around. We certainly still have plenty of problems that we’re going to have to get through. One of the problems we’ve got to get through is the fact that stock market valuations are still quite high and need to come down. Another problem is that strikes are still continuing to go on. And now Kaiser Permanente workers say they are unlikely to reach a deal in order to avert a strike themselves. Of course, we still have the auto union workers strike, which is causing pretty much all auto stocks to go down right now.
But one auto stock in particular might actually perform well this month despite the strikes. And that company is Tesla ticker TSLA. Tesla’s Q3 delivery numbers are coming out Monday morning before the market opens. But regardless of those delivery numbers, bulls are already focusing on the Cybertruck. Now, analysts have been lowering their delivery expectations for Tesla over the past couple of days, and whether Tesla misses those delivery numbers or beats them is really not that big of a deal right now. Part of the problem is that the deliveries are starting to be less and less of an importance for Tesla as margins have started to come down and after Tesla already in China cut the price of their vehicles in half. We already know that Tesla is going to lose a lot of money on every single vehicle that they deliver in China. So margins are now a much bigger factor for Tesla than their actual delivery numbers are. We’ll find out just how good or bad those margins were when Tesla reports their third quarter earnings expected around October 18th.
But the real news for Tesla could be the cybertruck. Tesla has already started sending Cybertruck launch event apparel to employees and a sign that a new vehicle is coming soon. Now, whether Tesla stock rises or falls and what happens this month is going to be a big unknown. First of all, we do have that earnings call happening October 18th. We have the Cybertruck launch event happening sometime this month, possibly or next month. We don’t really know when. And this could be a classic buy the hype, sell the news event on Tesla. Very often when they go to release a new vehicle, we’ll see Tesla stock rally going into the announcement. Then on the day the announcement actually occurs, Tesla stock will very often sell off. So this might provide an incredible trading opportunity to be extremely bullish and buy call options leading up to the Tesla Cybertruck launch event, and then switching to put options on the day of that event, expecting the stock market to fall. At least this is how Tesla has historically performed in their vehicle launches.
Now, looking ahead to some of the economic news that’s coming out this week that’s going to affect the markets, we have the PMI and ISM manufacturing data that’s coming out on Monday, October 2nd. Then Tuesday, October 3rd and Wednesday, October 4th, we get some jobs data with job openings for August coming out on October 3rd. And then the ADP private payrolls employment data for September coming out on Wednesday. Then on Friday, we get the official September jobs numbers and all of these are really going to move the markets this week. So we can expect a very volatile week this week in the stock market.
Now, there is one really cool thing that Bill Ackman is doing, and he is introducing a brand new investment vehicle, very similar to the SPACs that have been known and beloved by investors, but a little bit different this time. This time something called a SPARC. Bill Ackman is reportedly said that he would absolutely do a deal with X, that is formerly known as Twitter, with his new spark funding vehicle. Now, you might be aware how SPACs are designed as what’s called a special purpose acquisition company, and these are designed to bring private companies public to help them start trading on the stock market. Well, a SPARC is very different, but the big difference between a SPARC and a SPAC, even though they’re very similar, is that with a SPAC, you don’t know what company they are going to bring public. The SPAC will start trading on the stock market, and then once you find out what company is going to bring public, the investors can either buy shares of that SPAC causing the price to rise, or they can redeem those shares for $10 causing the SPAC to lose money.
Well, the SPARC is similar, but in a SPARC, investors will know what company the financing vehicle would be used to merge with before they have to pledge their investments. In other words, with a SPARC, it would not actually start trading on the stock market until after they knew what company they were going to bring public. So if Bill Ackman did in fact launch a SPARC, he would announce before the company started trading that they were going to bring Twitter back onto the stock market. So there is a chance that Twitter, now known as X, could start trading publicly once again. We’ll have to keep our eyes on this news and see how it plays out. Obviously, this is just talk at this point and just rumors. Nothing is actually going to take place yet, but we’re going to have to keep our eyes on this to see if Twitter, now known as X, might start trading on the stock market once again.