The stock market continues to reach new heights, but some experts warn that a surprise economic slowdown could disrupt the bull run. Michael Hartnett, Bank of America’s chief investment strategist, sees substantial danger signs despite strong market sentiment and money flowing into risk assets. Hartnett noted that the trading range for U.S. stocks is likely to end via lower inflation or weaker growth.
He believes the bigger risk is an unanticipated slowdown in growth affecting housing, the wealth effect, and jobs growth. Since President Donald Trump took office, unemployment claims in Washington, D.C., have surged. Hartnett warns that a slowdown in the nation’s capital, precipitated by Trump’s efforts to slash the size of government, could be a risk.
Government outlays in 2024 were 52% higher than in 2019 before the COVID pandemic. Trump aims to rein in a budget shortfall that totaled more than $1.8 trillion in 2024 and already stands at $840 billion through the first four months of fiscal 2025. Despite the dangers to the rally, investors put $16.8 billion in equities last week, the most of any asset class.
Bonds saw inflows of $16.2 billion, while $3.3 billion went to cash. The primary source of anxiety is inflation, which ties back to President Trump. The latest round of tariffs, announced earlier this week, include fresh 25% levies on pharmaceuticals and semiconductors.
Trump argues these could encourage foreign companies to bring investments and operations to US shores. However, even the threat of tariffs has already impacted markets.
Economic slowdown and market disruption
Investors are still riding the momentum of the Trump bump and the continued growth of corporate earnings. But underlying issues are causing concern. Determining the best time to invest in the stock market can feel daunting.
The common advice “time in the market beats timing the market” is easy to say but hard to follow when stocks trade near their all-time highs. History has a clear answer for investors wondering whether it’s a smart idea to put their money in stocks right now. The basic idea behind investing is that stocks, as a group, increase in value over time.
New all-time highs tend to cluster together. If you had invested when the S&P 500 first hit a new high in 2024, your fund would be up about 26% as of now. The median bull market lasts 46 months.
That gives us about a year and a half until the current bull market reaches its median duration. The median total return for a bull market is 110%, with most gains occurring in the first half of the recovery from the prior bear market. Investing at all-time high levels can be more challenging than during market lows.
Careful consideration of investment choices is crucial, especially since stock prices have outpaced the underlying fundamentals for many large companies. One option for investors is to invest in a simple S&P 500 index fund. Alternatively, if you’re concerned about high valuations of the largest companies and want a more balanced approach, you could invest in an equal-weight S&P 500 index fund.
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