Top 14 US Stock Market Headwinds: Forces Pushing Stock Prices Lower
By Jeffrey Cohen, President and Founder, US Advanced Computing Infrastructure, Inc. A consultancy and investment advisory firm.
We read about investors betting that US stocks will go lower. We see seemingly rational people call a top and say that stocks will fall. Here are fourteen reasons why they think that, although what really matters is what happens tomorrow.
Our pinned tweet suggested that US companies will start to fail and enter bankruptcy right when the S&P 500 was trading at 4,602. This article will explain a few forces at work to push US stock prices lower.
Factors that put downward pressure on stock prices
Here are the factors that put downward pressure on stock prices when they rise.
- Short-term interest rates: up from near zero to 5.5% in one year.
- Long-term interest rates: up from ~2% to 4.5% in one year.
- Stock price variance (or the price of volatility): low, but rising recently.
- US Dollar (vs. other currencies): significantly higher, especially against Asian countries.
- The threat of war: growing with Russia, China, Iran and North Korea.
- Government sales of debt for cash (a.k.a. Quantitative Tightening or removing liquidity): The Federal Reserve has been letting ~$100B / month of their debt mature, which removes cash from the system. In addition, the US Treasury has to refill the Treasury General Account after the debt ceiling crisis, and is selling debt for cash in multiples of a trillion US dollars.
- Periods when share prices fall (momentum). We have seen 1-year returns of the Russell 2000 turn negative at -6%, and the 1-year return of the S&P 500 is +6%, including dividends. We see all three US passive indices approaching the right shoulder of a Head and Shoulders pattern, which is a classic reversal pattern. If the market falls enough to break the neck of that pattern in all three indices, history suggests the markets will fall further.
- Corporate Tax Rates (tax on net income): There was a new Alternative Minimum Tax rate of 15% included in the 2022 Inflation Reduction Act on companies with revenues of $100mm…