A Stock Market Crash Is Coming! Stopping SIPs / Selling MFs
A Nifty 50 Crash Is Coming! But Do Not Even Think of Stopping Your SIPs / Selling MFs, Yet!
The most important macro-economic trend gaining strength right now is the unmistakable slowdown being witnessed in the US economy. This is, of course getting overshadowed for the time being by a roaring stock market driven by a handful of AI-mania gripped stocks such as NVDIA etc. But the signs are getting louder by the day. Unemployment rate is now up at 4% from a cycle low of 3.5% as of last year. One after another, consumer facing companies from Starbucks, McDonald’s and Target are reporting slowing demand for their goods and services. Even tech behemoths like Salesforce have now joined the bandwagon by recently reporting a weak outlook for demand of their goods and services. As the effects of this slowdown becomes more and more apparent, it will ultimately force the Federal Reserve to act and initiate rate cuts. And history shows that rate cuts, as and when they start, are at least initially, interpreted by equity markets to mean that cost of capital for both consumers and businesses would start to come down.
Hence the start of rate cuts is treated by Wall Street as a very bullish signal for stocks and is usually marked by an acceleration in the on-going rally in equity markets. In India, the start of rate cuts in the US has historically triggered the most violent part of melt-up - the NIFTY rallied an impressive 13% in just about 5 months the last time the Fed started cutting rates in Aug 2019. And in the cycle prior cycle to that, the NIFTY rallied an even more spectacular 45% in just 4 months after the Fed started cutting rates around Aug/Sept 2007. We are now at the cusp of yet another rate cut cycle and this in turn presents an once-in-a-cycle opportunity to create wealth for investors in the near future.
However participation in any rally that kicks in after the start of rate cuts in US must be undertaken without for a moment losing sight of the fact that such rallies have historically almost always fizzled out within 4-5 months of the Fed starting to cut rates, because the US economy has slipped into a recession anyways, despite the Fed cutting rates, and that too within just 4-5 months of the Fed starting to cut rates. And this is what in turn, has historically triggered large stock market corrections, both in the US as well as in here in India.
Hence, while we are quite certainly headed for a large drawdown in equity markets eventually, the path to any such correction very likely first passes through a strong rally in equity markets.
Do watch the below YouTube video on A Stock Market Crash is Coming But Why Am I Super Bullish For Now?
