Former U.S. President, Donald Trump, has expressed his hope for a stock market crash to occur in 2024, but it seems unlikely that his wish will be fulfilled. Trump's desire to avoid a situation similar to Herbert Hoover, who was president during the 1929 market crash, is understandable. However, historical data suggests that the odds of a crash happening this year are significantly below average.
Looking back at previous presidential election years, it is evident that two out of the last four experienced a stock market plunge. In 2008, during the Global Financial Crisis, the S&P 500 lost 38.5% for the year. Similarly, in 2020, as the COVID-19 pandemic took its toll on the economy, the S&P 500 lost 34% in just over a month. These instances might raise concerns about a potential repeat in 2024.
While it is true that a crash can occur at any time, experts believe that the likelihood of one happening this year is low. Research conducted by Robin Greenwood, a Professor of Banking and Finance at Harvard Business School, provides insight into crash probabilities. Greenwood's analysis suggests that the current risk of a crash is not only low for the overall market but also across various individual market sectors.
In conclusion, it is improbable that Donald Trump's desired stock market crash will happen in 2024. Despite historical examples of crashes during election years, the latest research indicates that the probability of a crash occurring this year is below average. Investors can take comfort in these findings while making their financial decisions.
- Donald Trump hopes for a stock market crash in 2024 to avoid being compared to Herbert Hoover.
- Previous election years have seen significant market plunges.
- Low crash probabilities are observed in both the overall market and individual sectors.
- The likelihood of a crash occurring this year is below average according to recent research.
Greenwood's Model: A Unique Approach to Predicting Market Crashes
Greenwood's model for predicting market crashes takes into account several key factors that have proven to be reliable indicators. By analyzing performance over a two-year period, volatility, share turnover, IPO activity, and the price path of the trailing two-year runup, Greenwood and his team have identified patterns that can signal an impending crash.
One significant finding of their research is that when an industry outperforms the market by 150 or more percentage points over a two-year period, there is a staggering 80% probability of a crash. For the purposes of their study, a crash is defined as a drop of at least 40% over the subsequent two years. The chart below presents a visual representation of State Street's findings, showing remarkably low crash probabilities for all sectors, well below the average forecasted crash probabilities of the past five years.
It is important to note that these probabilities do not guarantee a great year for stocks in 2024. A new bear market could begin this year without meeting the researchers' definition of a crash. However, the State Street US Froth Forecasts provide a valuable perspective, indicating that there may be more pressing concerns this year than the possibility of a crash.
With such unique insights and innovative approaches to market analysis, Greenwood's model offers valuable guidance for investors seeking to navigate the complexities of the financial landscape.
More: Trump says he hopes market crashes in 2024 under Biden: 'I don't want to be Herbert Hoover
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