Could this new risk lead to a stock market crash in 2024?

Global stock markets have had a great run over the last six months. Could this new economic risk throw a spanner in the works?

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The stock market has had a fantastic run recently. Over the last six months, for example, global tracker funds have returned about 20%.

The problem is, much of this recent rally has been built on the belief that the US – the world’s largest and most influential economy – will see multiple interest rate cuts in 2024. And this may not actually happen.

No interest rate cuts in 2024?

Already this year, investors have recalibrated their expectations for US rate cuts significantly.

At the start of the year, investors were expecting six rate cuts in 2024. However, with inflation still relatively high, and economic growth remaining strong, the consensus forecast is now for three.

There is a risk that we may not see any at all, though. This is a scenario that a number of big names in the financial world have highlighted recently.

One such market participant is Torsten Slok, who is chief economist at private equity firm Apollo Global Management.

Slok has pointed out that rising stock prices have made people wealthier and that this has eased financial conditions. As a result, he doesn’t expect the Federal Reserve to cut rates this year.

It’s really difficult to see the Fed begin to cut rates when you have the S&P at all-time highs

Torsten Slok

Other experts warning that we may see no rate cuts this year include economist Mohamed El-Erian, who said last month that the Fed should wait “a couple years“, ex-Morgan Stanley CEO James Gorman, and ‘Big Short’ investor Steve Eisman.

So, to my mind, it’s a scenario worth thinking about.

Volatility ahead?

Now, I don’t believe a zero-rate-cut scenario is likely to lead to a stock market crash.

However, I do think talk of no rate cuts (or perhaps even talk of another hike) could lead to some volatility in the markets throughout the year.

I will be looking at any volatility as a plus, though.

That’s because, as a long-term investor with a multi-decade investment horizon, I want to be buying shares at lower prices, not higher ones.

One stock I’d like to buy

As for stocks I’d like to buy more of, one is UK-listed Sage (LSE: SGE). It’s a leading provider of accounting and payroll software.

Sage shares have been a great investment for me so far. Since I bought them in September 2019, they’ve nearly doubled in price, which is a great return in less than five years. I’ve also received regular dividends along the way.

The problem is, after a big jump in the share price recently, the company’s valuation is now quite high. Currently, the price-to-earnings (P/E) ratio is about 35.

I do want to boost my position here as I think the company is really well positioned in today’s digital world.

However, I’d prefer to invest in the tech company at a slightly lower valuation (i.e., at a P/E ratio of between 25 and 30). This would provide a bit more of a margin of safety, should future revenue or earnings growth come in below the market’s expectations.

So, I’m hoping some market volatility throws up a nice buying opportunity in this gem of a UK company.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has positions in Sage Group Plc. The Motley Fool UK has recommended Sage Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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