Stock Market Prediction 

 This article was written by Vladimir Mazepa, a Financial Analyst at I Know First.  

Summary

To summarize, the US economy is facing different kind of problems as well as positive sides exist. Fundamentally, Corporates still generate cash, but US current condition is terrifying and risk/profit factor is too high to invest now. Earnings per share are growing and that is a positive sign, but don’t look just at it.

The first problem is an increase in corporate, student and federal debt. I am anxious about an increasingly high federal debt as well as corporate debt. Although net corporate debt is reducing and now is below 33%, this might be because of Trump’s corporate tax reform, so the tax pressure on companies and consequently their debt decreases, but this is the harbinger of bigger debt, companies are borrowing more and more to be competitive. Furthermore, hiking interest rates could launch the chain of corporate defaults. GDP is growing and that is a good sign for the economy, however, GDP and employment don’t show the problems inside the country and can mislead you. PMI and employment rate at its peak, it might sign you a positive signal, but on the other hand, it is a first sign of overheating the economy. Moreover, the most significant indicator here is the yield curve, which is already flattering and may go in inverse. Volatility is at its peak, S&P 500 fell 19% by closing prices, support levels are far away, the world is anxious about the continuing fall of S&P 500.

All in all, the economy is cyclical. We are at a peak or early recession economic cycle. S&P 500 has recorded longest rally in history. We have seen new highs for 9 consecutive years. Bulls are out of steam.

This is just my opinion, but in the current market condition, as almost all the macroeconomic indicators are showing slowing economic growth. I will look up at the situation, but in short-term I see the situation on S&P in range with ups and downs and big volatility.  We are in the last economic cycle before the recession or even in the early recession. In my opinion, a downturn has already begun and after a little upside correction (up to 3 months), we may see next fall and it could be one of the biggest in US history because this time interest rates are low, there is not enough leverage to control economic fall. Fundamentally eps show bullish signal, but I wouldn’t rely just on it, because market volatility creates a bigger risk to compare with reward.

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