In the autumn of 2021, my foresight detected an impending stock market crash, and true to my prediction, the market began a downward spiral, with the S&P 500 experiencing a decline of 19%, and the NASDAQ plunging by 30% prior to November 2022.
As a result of my proactive approach, I managed to avert a substantial loss in my portfolio. I achieved this by liquidating over 90% of my equity holdings and converting the resulting funds into short-term T-bills, a move that provided me with a sense of accomplishment.
However, over the past four months, approximately from April to July, the stock market unexpectedly staged a rally, reclaiming a significant portion of its previously lost ground. This resurgence prompted me to reflect on the validity of my strategy. At present, numerous market pundits are confidently asserting that the ongoing upward trend has substantial endurance due to the robust state of the economy. They cite low unemployment rates and easing inflation as evidence of this strength. Regrettably, these optimistic investors appear to overlook a critical variable: the health of the U.S. populace.
It has been projected that around 80% of the U.S. population has been afflicted by COVID-19 at some point. Among them, 15% to 20% continue to grapple with lingering symptoms termed “long Covid.” This condition is characterized by an array of debilitating symptoms, including severe fatigue and cognitive impairment, to the extent that gainful employment becomes an arduous task. Even those managing to retain their jobs inevitably suffer from reduced work efficiency.
Recent estimates suggest that at least 23 million Americans are now coping with the effects of long Covid, including approximately 7% of the U.S. workforce. This translates to one out of every 14 workers still contending with this persistent ailment. Consequently, the scarcity of laborers across diverse industries is unsurprising, leading to job vacancies that remain unfilled.
The ostensibly low unemployment rate is more indicative of a workforce struggling with health issues than a thriving economy. What remains clear is that America is entrenched in debt on all levels — from the federal government to average American households and college students. The prevailing sentiment seems to be “enjoy the present, pay later,” a trend that gained momentum especially in the aftermath of the pandemic. The pent-up consumer demand has emerged as a driving force propelling the economy forward. However, with rising interest rates, the costs associated with housing (mortgages), transportation (including auto loans), and education (student loans) have surged. Instead of conserving financial resources, more and more individuals are relying on credit card loans and tapping into their retirement savings prematurely to sustain their spending habits. This approach only serves to exacerbate inflation, and inevitably leading to a reckoning when debts come due.
The recent surge in the stock market has been underpinned by a misguided assumption of economic resilience. This misconception is bound to surface when the temporary boost fueled by consumer expenditure loses steam, potentially triggering a substantial market downturn. Unfortunately, many are rushing headlong towards this precipice, oblivious to the looming reality. My projection is that the market is poised for another downturn, possibly even more severe than the crash of 2022. The forthcoming November might prove to be a trying time, incidentally aligning with an inauspicious phase for President Biden from November to January.