Stocks have been on a tear, but some forecasters warn of a potential crash due to lofty valuations and signs of a bubble. Economist Harry Dent predicts a major market crash, with the S&P 500 potentially dropping 86% and the Nasdaq Composite dropping around 92%. Capital Economics predicts that stocks have another 20% to inflate before the bubble bursts. Investor John Hussman believes stocks could plunge as much as 70% once the bubble bursts, citing overvaluation. RBA's chief investment officer, Richard Bernstein, warns that large-cap stocks are overvalued and could see a significant drop. UBS points out that six out of eight warning signs of a market bubble have already flashed. Despite the warnings, analysts agree that the prospects for earnings are looking favorable for stocks.
Renowned economist Harry Dent has predicted a stock market crash in the US, referring to it as the 'bubble of bubbles'. Dent warns that loose monetary and fiscal policies in the country have led to the formation of an artificial bubble that is on the verge of bursting. He estimates that the S&P 500 could lose as much as 86% of its value, while the Nasdaq Composite could experience a 92% drop. Dent believes that this crash will be worse than the sub-prime crisis of 2008. He argues that the bubble has been building up over the past 14 years, and the incoming US President may face challenges in dealing with the fallout of the economy. However, the likelihood of the crash remains uncertain and depends on the actions of the US Central Bank and the US Treasury Department.
Some forecasters are expressing concerns about a potential stock market crash amid fears of a bubble. Economist Harry Dent predicts a major market crash, with the S&P 500 potentially dropping 86% and the Nasdaq Composite dropping around 92%. Capital Economics believes that stocks still have another 20% to inflate before the bubble bursts. Investor John Hussman thinks stocks could plunge as much as 70% once the bubble bursts. RBA's chief investment officer, Richard Bernstein, warns that large-cap stocks are overvalued and could see a significant drop. UBS points out that six out of eight warning signs of a market bubble have already flashed. Despite these warnings, analysts note that the prospects for earnings are looking favorable for stocks.
Paul Dietrich, chief investment strategist at B. Riley Wealth Management, predicts that the S&P 500 could crash 48% if the stock market bubble bursts and the US economy enters a recession. He points to warning signs of an overvalued market, including high price-to-earnings ratios and historically low dividend yields. Dietrich also predicts that inflation and interest rates will remain high, and taxes will rise. He compares the current hype around AI to the dotcom bubble and notes that the Buffett Indicator is close to the mark at which Warren Buffett considers buying shares to be 'playing with fire.' Dietrich believes that the economy is cooling and risks are present, and he expects a mild recession this year. He notes that the S&P 500 typically plummets about 36% during a recession and could fall by 48% to around 2,800 points.
Peter Berezin, chief strategist at BCA Research, predicts that the S&P 500 could fall more than 30% as the US economy heads into a recession. He expects the recession to start later this year or early 2025. Berezin believes that a slowdown in the labor market will put pressure on consumer spending, leading to a vicious cycle. He also expects global growth to slow, impacting global stock markets. BCA advised clients to reduce equity holdings and increase allocation to bonds and cash. JP Morgan's top strategist, Marko Kolanovic, also predicts a big pullback in the S&P 500. Recent market movements show volatility as investors navigate divergent forecasts and prepare for potential market adjustments.
Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, believes that certain parts of the stock market are already priced for a recession. His team is shifting towards cheaper areas of the market that could hold up better if the economy sours. Schutte points to the price-to-cash flow ratio for the S&P Small Cap 600 index, which already looks like it typically does at the end of recessions. Northwestern is broadly underweight equities but overweight small- and mid-cap stocks in preparation for a likely recession. Schutte believes that these areas of the market have already discounted some of the recession risk and will perform well when economic headwinds turn to tailwinds. Despite the possibility of a soft landing, Schutte believes that the bet on small-cap stocks could still pay off. A prolonged economic expansion would likely benefit a broader group of winners, including small caps and equal-weighted funds. Northwestern manages over $280 billion in assets.
