By John Grace
Contributing Columnist
With the markets soaring, the need to keep a watchful eye and be prepared to act is more urgent than ever. Are you ready to apply the brakes if needed? The current market situation demands your immediate attention and action.
The S&P 500 index experienced significant growth from Jan. 3, 2022, to Aug. 30, 2024. In January 2022, the index closed at approximately 4,796.561. As of Aug. 30, the index closed at around 5,648.401. So, the S&P 500 has returned approximately 17.77% over this period, according to Yahoo Finance.
Let’s consult a couple of sources to understand the current market situation. Remember, while we can’t predict the future, having an exit strategy is always wise. You don’t want to be in a situation like Wile E. Coyote and the Road Runner, where Wile E. Coyote often finds himself running off a cliff and only falls when he realizes he’s no longer on solid ground.
The potential risks are real and being prepared with an exit strategy puts you in control and helps you navigate these risks.
As Mark Hulbert at MarketWatch puts it, “The stock market is dangerously overvalued” from every angle.
“The U.S. stock market today is almost as overvalued as it was at the market top on Jan. 3, 2022,” he added. “Comparing current valuation with what prevailed at previous market tops is essential whenever the market recovers from a correction (or worse) and reaches a new all-time high. Investors can hope that the correction or bear market will have worked off some of the excesses that had prevailed previously and provide a foundation to support a significant new leg of the bull market.”
Economist Harry Dent recently appeared on “Cavuto: Coast to Coast” on Fox Business. During the interview, Dent discussed his predictions for the economy, emphasizing that he expects a much harder pullback than anticipated and warned that there won’t be a soft landing.
He also stressed the urgent need for a “debt detox” before the economy can experience the next significant boom. His advice is not to be taken lightly.
Per the Federal Reserve Bank of New York, the national debt at the highest ever ($35.29 trillion) is the total amount of outstanding borrowing by the U.S. Federal Government accumulated over the nation’s history. Total consumer debt in the United States stands at a record high of $17.796 trillion as of the second quarter of 2024.
In 2023, the average total consumer household debt was $104,215, up 11% from 2020. Over the past year, consumer debt balances increased by 4.15%. My point here is that there is no reason to point fingers at anyone because we consumers, as well as the government, no matter who is in the White House, are not paying cash; everything is on credit.
As a certified member of Dent Research, let me share Harry Dent’s recent remarks. Dent doesn’t usually consider who becomes president a significant factor in the broader economy. Still, you may remember Bill Clinton’s complaint: “I didn’t have a big enough economic crisis to go down as a great president.”
This time, Dent says, “The winner of this election is likely to go down as a great president as the finale to the Baby Bust economic downturn that should have occurred between 2020 and 2022 has been pushed off through $27 trillion in cumulative stimulus since the 2008 Great Recession. They will get that economic crisis Clinton longed for and not get blamed for it as it hits around the time they walk into office.”
Dent says that the grits will likely hit the fan “between late 2024 and mid-2027, with a stock crash of 80% or more and an economic downturn of something like 1.5 times the severity of 2008-09. That is only if the “You don’t get something for nothing” law still applies. So this election does matter, and “we are way overdue for a hangover from that $27 trillion stimulus party.”
In our conversation, Dent sounded similar to physicist Miko Kaku, when he said the second great depression was delayed but would not be averted. Self-driving cars are likely to go mainstream within 10 years.
Investors only have a little time. A well-thought-out exit strategy is crucial for investors, especially before severe market downturns. It’s no different from developing autonomous driving technology; creating an exit strategy requires foresight and planning.
The job is even more crucial for those expecting to receive income for life. Limit your losses. Keep your arms and legs inside the vehicle.
John Grace is a registered representative with LPL Financial. His On the Money column runs monthly in The Wave. The opinions expressed here are for general information only and are not intended to provide specific advice or recommendations for any individual.
