David Lin: Markets Bottom, Expect ‘Strong Rally’ Next, Then 50% Crash
Markets are shaking off their September slump with a strong performance in the first full week of October. That’s in line with seasonal trends.
While specific dates in October stand out for big market drops, September is historically the worst months of the year. On average, October tends to see markets move higher. Markets are now on track to follow that trend in 2023.
What can investors expect from here? Given how stocks closed in on their 200-day moving average, expect a strong rally. Another factor? The fact that nearly 80 percent of stocks moved under their 50-day moving average in the recent drop.
Historically, both of those trends are strong signs of an oversold market ready to bounce.
Markets should trend higher in the coming weeks. Stocks may even make a new high for 2023, surpassing the July peak. Either way, adding to the year’s gains, stocks are on track for a strong end to the year.
Going into 2024, investors should get more cautious. The recent drop in bond prices led to soaring yields. Treasury bonds have started to “un-invert.” That’s a trend that has preceded recessions in the past.
So investors can have some holiday cheer this year. But markets may start 2024 much like 2022, where the trend moves lower over time. Depending on conditions, markets may even crash going into the end of 2024.