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Is Another Black Monday Looming? Key Clues for Investors to Navigate the Market

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As investors grapple with stubborn inflation numbers and a hawkish US Federal Reserve, geopolitical tensions in Ukraine and the Gaza Strip add to the market’s uncertainty. It’s a familiar scenario for experienced investors who know that stocks often climb a β€œWall of Worry.” The question now is whether the market is on the verge of replicating the 1987-style β€œBlack Monday” crash, or if it will rally into year-end. To help investors determine the market’s next move, here are three key clues to consider:

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A Stabilization in Bonds

When bond prices fall and yields rise, it can lead to more attractive returns for investors and increase borrowing costs for companies. The oversold levels of the IShares 20+ Year Treasury Bond ETF (TLT) indicate a possible bottom or bounce. In fact, billionaire hedge fund manager Bill Ackman recently announced that he covered his bond short bet, further suggesting a potential turnaround.

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Zacks Investment Research
Image Source: TradingView

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Strong Seasonality Mixed with Poor Sentiment

Historical seasonality trends indicate that November and December in the pre-presidential cycle are typically strong months in the market. However, current sentiment measures, such as the CNN Fear & Greed Index, show extreme fear among investors. This sentiment was further highlighted when the term β€œBlack Monday” trended on Twitter over the weekend.

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Zacks Investment Research
Image Source: Carson Research

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Big Tech Earnings

Earnings from major tech companies like Microsoft (MSFT), Alphabet (GOOGL), and Amazon (AMZN) have a significant impact on the overall market. These companies alone account for trillions in market cap, and the performance of mega-cap tech stocks has been a major driver of equity performance in 2023. The upcoming earnings reports from these tech giants will provide critical insights into the market’s direction.

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Zacks Investment Research
Image Source: X.com

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When considering these clues, it’s important to recognize that Black Monday in 1987 took many by surprise. Will history repeat itself now that everyone expects it?

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In conclusion, as fear, uncertainty, and doubt impact investors’ mindset, the market is at a critical juncture. Assessing the stabilization of bonds, analyzing historical seasonality trends alongside poor sentiment, and closely monitoring the earnings of major tech companies will provide valuable insights for investors navigating the current market conditions.

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