From CNBC: 2024-06-10 12:52:55

Stock market crashes are rare events that occur when various elements align. Factors, such as a frothy stock market, rising interest rates, financial contraptions injecting leverage, and catalysts, contribute to crashes. With elements aligning, a crash may be on the horizon as the S&P 500 sees a 140% rally since March 2020.

Interest rates have quadrupled over three years, with the 10-year Treasury yield stopping its climb. However, expectations for lower rates are diminishing. If a catalyst emerges, such as a legal or geopolitical event, the stock market could be primed for a crash. Currently, the private credit market poses a risk with hedge funds acting as banks and making loans.

Prudent investors should maintain a diversified portfolio and avoid speculation on crashes. A traditional 60/40 portfolio remains effective amidst market fluctuations. Stick to your investment plan, as history shows that market crashes often present buying opportunities. Despite potential risks, the American stock market continues to offer long-term growth opportunities.

Read more: The elements for a big stock market drop are aligning. Here’s why investors shouldn’t panic