Three major reasons may raise the risk of U.S. stocks falling
1. The economic outlook is unclear:
A rebound in U.S. economic growth could put upward pressure on prices and prompt the Federal Reserve to keep interest rates higher for longer, putting selling pressure on asset prices.
2. Corporate profits are still fragile:
S&P 500 operating margins now average 14.5%-16.5%, but the 25-year average is 12.5%. A return to long-term average performance may therefore result in corporate earnings growth turning negative, a so-called "profit recession"
3. The labor market continues to strengthen:
If strong real wages support consumption, job market resilience could help the U.S. economy achieve a soft landing. The problem, however, is that strong wages and spending could add to inflationary pressures, thereby failing to justify a rate cut.
