As stocks continue to sell off, people are starting to wonder just how bad this stock market crash will get. So why did the stock market fall today? The stock market crash 2023 is intensifying as interest rates continue to rise as the labor market remains stronger than expected. The latest stock market news today show job openings higher than expected, which spooked investors into thinking the Federal Reserve might actually do what they said they were going to do – which is keep interest rates higher for longer. As investors started looking at their stock market analysis, they realized that the stock market correction we’ve had over the past two months has not yet priced in elevated interest rates and that fact that Jerome Powell might actually be telling the truth. And that led to a stock market crash today. Later this week we will get more stock market news that might result in an even great market crash coming. The market crash today might have just been the start of a much larger stock market crash 2023. Today’s stock market update presents all of the reasons why stocks are trading the way they are in an easy to understand stock market for beginners way.
The stock market crash is getting worse with stocks like Mara down over 14% today. And even I am starting to wonder if the market is going to bottom out in October and rally like it historically does. I mean, the S&P 500 is down 8% over the past two months and is now just 1% away from the crucial 200 day moving average. I don’t know about you, but my stock portfolios have been getting decimated over the past few months. Most of my money is held up in these long term stocks. Even the Millionaire Club portfolio has now turned negative.
By the way, if you’re wondering when we’re going to make the next buys in the Millionaire Club portfolio since we missed Friday, since I’ve been really sick, the buys are coming up soon. One of my rules when it comes to investing or trading is don’t trade sick. So I have been waiting to feel better before we start making those buys from the Millionaire Club portfolio. But they will be coming up soon, hopefully tomorrow or the next day.
Now, with all of the selling that we’ve had over the past few months, the stock market hasn’t just fallen into fear, it’s fallen into extreme fear. But what I find most fascinating about the fact that we are back to extreme fear is the fact that one year ago today we were also in extreme fear at 20 on the Greed and Fear Index. And remember what happened a year ago. We bottomed out and we went on this massive eight month rally. So the question that I’m now asking, and I think the question that a lot of people are asking is, is this the bottom? Is this a Warren Buffett moment where we should be greedy when others are fearful? Are we going to bounce off of the 200 day moving average, which would represent another downturn in the stock market of about 1%? Are we going to bounce off of that level and then go on a rally, or are we going to break below that 200 day moving average? And are we going to enter a new bear market like we saw in 2022? That is the great unknown. Nobody really knows for sure what is going to happen.
On one hand, we have a lot of parallels to 2022 where we had this major sell off. We bottomed in October and then rallied. That gives me a lot of hope that my portfolio can turn around and I can start making money again. On the other hand, we have a lot of problems in the stock market. A lot of real reasons why the stock market should actually continue to go down and not turn around and go back up. One issue we’re running into is the fact that oil prices remain well above $90 a barrel. Now, you can see on the very bottom of here, where one year ago we were also at the same level and again, a year ago, the stock market bottomed out and it went back up. But in order for that to actually happen, the oil prices would have to fall significantly. As you can kind of see here on the chart, about a year ago, oil prices started going down and that’s when the stock market went up. So at least when it comes to oil prices, there’s a chance for oil prices to go down and the stock market to rally, just like it did in 2022 and October, a year ago today.
However, there are some bigger issues that also indicate the stock market might actually continue to go down. And this is what really has me fearful. It’s what’s making me question whether I should even be holding my stocks right now because of this great big uncertainty. Is this another moment to move back into cash like it did at the end of 2021? Or is this a moment to buy the dip and start loading up like we did in October of 2022? I’m still really not sure. But let me just go ahead and show you why the market might continue to go down so that you can make a decision for yourself.
The biggest problem we have right now is the fact that interest rates continue to go up. The 10 year Treasury yield just hit 4.8%, which is a 16 year high. The 10 year Treasury hit the highest level it has been at since 2007. The 30 year Treasury also rose to the highest level it has been at since 2007. That’s right – 2007 – right before the great financial crisis and one of the biggest drops in the stock market in our lifetimes. As you can see here on this 10 year Treasury chart, the Treasury yields are at the highest level since 2007. And if they go up much higher than this, we are going to be at the highest interest rates we have seen in over 20 years. If interest rates go up much higher, they’re going to be the highest they’ve been since the year 2000 during the.com bubble where the Nasdaq fell 80%. And in fact, mortgage rates have already raced towards 8%, hitting a high not seen since late 2000. If the stock market is going to continue to fall and hit another bear market like we saw last year, it will be interest rates that cause the great fall of the stock market here in 2023.
The fact is, something is breaking in the financial markets and it’s what’s leading to the sell off in stocks. Rates are going to stay higher for longer. This is an idea that Fed officials have tried to get the market to accept, and which investors are just now only beginning to absorb. I’ve talked a lot on this channel about how the bond market and futures markets have already priced in this idea that the Fed is going to keep interest rates elevated for longer. And I’ve talked about how the stock market has been completely ignoring the Federal Reserve, basically calling Jerome Powell a liar. Well, that narrative that allowed us to go on an eight month rally from October of 2022 through July of 2023, that belief that the Federal Reserve is lying and that they’re actually going to lower interest rates, is starting to fall apart. And the stock market appears to be ready to start pricing in higher interest rates for longer.
Now the reason higher interest rates is bad for stocks is because it lowers corporate profits. And when company profits go down, stock prices go down. The fact is, the cost of capital is going up, and companies are going to have to refinance their loans at higher rates. All of this has yet to be assimilated and digested by the market. It’s just now starting to be. And you can see that it’s troubling and it’s difficult. Now, there’s a reason why the stock market is just now starting to believe the Fed that they are, in fact, going to keep interest rates elevated for longer. That belief just got started today, on Tuesday, October 3rd.
The carnage in the stock market really got going following the 10 a.m. Eastern Time release of the Labor Department report showing that job openings took a sudden swing higher in August, countering the prevailing wisdom that the employment picture was loosening, thus putting less upward pressure on wages. This shock that the economy remains extremely strong, and more so that the labor market remains extremely strong, and that wages are actually going up, means inflation is going to continue to go up as well. And that in turn caused traders to grow worried that the Fed would be forced to keep their monetary policy tight and to keep interest rates elevated for longer.
Along with the slide in stocks, the yield on the 10 year and 30 year government debt instruments – that is Treasuries – hit highs last seen as the economy was moving towards the great financial crisis. They say that most recessions are Federal Reserve induced, and this upcoming recession that we are about to enter appears to be no different. So much of the economy over the past 15 years has evolved because of low rates and even negative rates. Now it’s adjusting to what would be considered an historically more normal rate regime. After 15 years of living in an unnaturally low rate regime, normal sounds, well, abnormal.
You see, over the past 15 years, the stock market has gone on a massive rally due to the fact that interest rates have remained near zero. Corporations, especially technology stocks, were able to borrow at around 2% to 3% interest rates. And with companies such as technology companies able to borrow at extremely low interest rates, they were able to grow extremely fast. And because of this extreme hyperbolic growth that technology stocks have endured over the past 15 years, traders, investors, have come to become comfortable with forward PE ratios upwards of 20 or 30. They’ve become comfortable with trailing PE ratios around 60 or 80. But what investors are just now starting to realize is that companies are no longer going to be able to grow at the hyperbolic growth rates that they were able to over the past 15 years.
And that’s because if companies have to now borrow at interest rates of 10% or 12%, well, that means growth is going to be much, much slower than it was when companies were able to borrow it 2% or 3%. And with much slower growth, that means multiples, that is PE ratios, they have to come down significantly to price in this much lower growth. And this has caused stocks across the board, especially technology stocks, to absolutely crash over the past few months as the stock market starts to accept the fact that interest rates are going to be remain elevated for longer.
Now, this isn’t just a problem for technology stocks. It’s also a problem for banks and financial stocks. Multiple parts of the economy face substantial interest rate risk, but none more so than banks. In the second quarter, unrealized losses on bank balance sheets totaled $558 billion, which was an 8.3% jump over the prior period. And that number is now expected to climb. You might recall how back in March, rising interest rates actually caused the collapse of two of the largest banks in US history. And this sent financial stocks and the stock market crashing in March, but it then recovered.
The problem is we’re now having a lot of parallels to 2008. See, back in 2008, in March of 2008, Bear Stearns collapsed. And a lot of people at that time had this belief that the Bear Stearns collapse was a one off, that the rest of the financial market could survive. And as a result, the stock market went on to rally from March of 2008 through about now. But then we started getting bigger bank collapses. And by October of 2008, everything fell apart as Lehman Brothers collapsed. And that exact same thing is starting to happen right now in 2023, where the rally, the belief that banks would be fine, is starting to go away and people are starting to realize that banks are still in trouble, and we could have a lot more bank collapses over the next few months. This fear has sent bank ETFs such as FAC crashing over the past few weeks. And as bank stocks collapse, this brings down the Dow Jones Industrial Average and also the S&P 500.
And to make matters even worse, at the same time all of this is going on, Washington dysfunction has bond buyers worried about the US fiscal house. With public debt at nearly 120% of GDP, and net financing costs running higher towards $745 billion in 2024 after totaling $663 billion this year. And the dysfunction in the US Congress actually led the House to oust Kevin McCarthy as speaker, which is the first time in US history that the US House of Representatives has dethroned its leader. This is making it less likely that we will be able to avoid a government shutdown in November once the 45 day stopgap expires. Not only that, but Moody’s and Fitch have already warned that this dysfunction in Congress could lead to a credit rating downgrade of the US credit rating, as well as a downgrade to bank credit ratings. And this is another reason why we’ve seen bank stocks crash over the past few weeks.
Of course, not just bank stocks crashing, but tech stocks as well. Tech stocks are still sliding after closing out their worst month of 2023. Take Tesla for example, which is down 17% from July highs. And the problems continue with Meta now laying off more employees. And Meta isn’t just laying off employees, they’re laying off employees in the metaverse unit, which was supposed to be the future of Meta. This is showing serious problems, and these problems aren’t getting better, they’re getting worse. As a result of all of this, valuations are coming down. Tesla just missed their delivery numbers. Their margins this quarter, when they report on or around October 18th, are going to be even worse than they were last quarter because they had to cut the price of their vehicles in China in half. And all of this is causing investors to reevaluate how much these tech stocks are actually worth. And that’s why we are seeing tech stocks, bank stocks, and the overall market continue to sell off.
Now what we don’t know yet, is will all of this bottom out once the market hits the 200 day moving average, will all of this bottom out in October like it historically does, and we see the market go on a new rally, or will the market continue to sell off? Will the market continue to be in fear, and will we enter a new bear market like we did last year? That remains to be seen. While we have a lot of similarities to 2008 that show the stock market should continue to sell off, and even hit new 52 week lows, we also have a lot of similarities to October of 2022 that might indicate the market bottom out and go up from here. Which way the market goes remains to be seen. One thing is for sure, investors are going to have to remain extremely diligent and be extremely cautious about what they buy during this time in case the market continues to sell off.