Market Analyst Warns Of Four Major Threats To Stock Market In 2024

On Thursday, market analyst Ed Yardeni highlighted in a note the risks that could destabilize the market's growth in 2024.

Yardeni, known for his deep insights into market dynamics, pinpointed four specific challenges investors should closely monitor in the upcoming year.

Yardeni generally holds a bullish view of the stock market's prospects and predicted a significant rise in the S&P 500 index.

However, he stressed the importance of recognizing the underlying risks that could induce market volatility, particularly in the year's first half, as detailed in a report by Business Insider.

Risk Of Resurgent Inflation

One of the foremost risks Yardeni pointed out is the threat of inflation returning. An increase in inflation could impede the Federal Reserve's plans to lower interest rates later in the year.

"The problem is that rent inflation as measured in the CPI remains sticky. Excluding shelter, the headline and core CPI inflation rates are down to 1.8% and 2.2%. That's really good news, but the Fed wants to avoid a rebound in inflation, which is why we expect fewer-and-later rate cuts this year," Yardeni said.

Also Read: 2024 Kicks Off With Wall Street Turmoil, Federal Reserve Policy Concerns Spark Investor Uncertainty

Expanding Federal Budget Deficit

Another critical issue is the expanding federal budget deficit, leading the Treasury Department to issue additional debt. This surge in debt issuance might result in higher interest rates, posing a significant hurdle for the U.S. economy and the stock market.

"The U.S. Treasury released December's deficit and debt data showing the former at $1.78 trillion over the past 12 months while the latter rose $2.43 trillion over the past 12 months," Yardeni said.

Yardeni noted that the U.S. government's interest payments have doubled since 2020, potentially outpacing its annual defense spending.

Geopolitical Tensions In Yemen

Geopolitical tensions also feature on Yardeni's list of potential risks. Recent military actions by the U.S. and Britain against Houthi targets in Yemen in response to attacks on ships transporting oil and goods have heightened conflicts that could further inflate prices.

Escalating Tensions Between China And Taiwan

The presidential election in Taiwan and the escalating tensions with China are also a concern, given Taiwan's pivotal role in the global semiconductor market. The potential impact of these tensions on the global economy is significant, with estimates suggesting a substantial hit to global GDP in the event of a conflict.

"China is strongly opposed to Taiwan's current ruling party and has warned that the election will be a choice between 'war and peace, prosperity and decline,'" Yardeni added. 

Now Read: Investor Optimism Tested: Navigating 2024 Bond Market's Uncertain Terrain

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.