A fund manager recently forecasted that the U.S. stock market will crash, where dismal returns can be seen for the next 10 to 15 years.
One of Wall Street's biggest bears even in the face of the market's eight percent rally in 2024 and top two percent fund manager Bill Smead, Chief Investment Officer with Smead Capital Management, told Business Insider that stocks appear to be in the midst of a speculative bubble, which could set investors up for a "dead ball" era of performance.
The skepticism comes despite the S&P 500 rising sharply in recent months, even hitting new record highs in March, after a 24 percent surge in 2023. The fund manager believes the bear market will last for a decade and will only end once all the enthusiasm for the market's most expensive stocks has bled out. The process could lead to losses on par with the dot-com bubble and the Great Financial Crisis, he further warned. "It will be more like the '00-'03 bear market, or more like '07-'09," Smead told Business Insider. "We'll probably get two full-blown bear markets in 10 years that will negate making any money in the S&P 500 index. You won't want to buy the S&P 500 index until it becomes kind of a swear word," he said.
He also pointed out that the losses could be fueled by stubbornly high inflation. The Bureau of Labor Statistics' latest Consumer Price Index (CPI) report showed recently that the CPI has come in hotter than expected for the last three months, with prices rising 3.8 percent year-over-year in March. "That's making the economic landscape look precariously similar to the 1970s," he said, right before inflation spiraled out of control, hitting the stock market. "It just reeks of inflation. We are entering an inflationary era and that's going to cause a complete shift in what we like to call the investment zeitgeist … the stock market itself cannot do well when that zeitgeist is changing, because all the money is in [there]," Smead added.
Meanwhile, investors have been eager to put their cash in artificial intelligence (AI) stocks and mega-cap leaders like those in the Magnificent Seven, but Smead has repeatedly warned to stay away from overvalued areas of the market. He previously predicted that the most expensive stocks could plunge as much as 70 percent in value. "Nobody ever talks about the massive percentage of growth stocks that carried euphoric prices, do poorly and get slaughtered," he said in a note last week. "In the dead ball era, we found places to get hits and score runs," he said, pointing to the outperformance of those sectors during the 70s. "We're in that same situation."
Other bearish forecasters on Wall Street have also warned of a correction looming for stocks, given that valuations are at dizzying heights. Still, the consensus view is fairly optimistic and nearly half of investors say they're bullish on stocks over the next six months, according to the AAII's latest Investor Sentiment Survey.
Six risk factors that could make the stock market crash in 2024
The stock market continues to roll despite the stubbornly high inflation and as market gains accumulate. "U.S. equities have seen a tremendous run since late October 2023," says Peter C. Earle, senior economist at the American Institute for Economic Research. Between Oct. 27 and March 28, the S&P 500 gained 28 percent, the Nasdaq added 30 percent and the Dow Jones Industrial Average rose by 23 percent.
"For an economy in which disinflation is slowing, employment may be starting to crack and consumer activity seems to be softening amid tighter credit, the depletion of pandemic savings and growing financial distress (rising late payments and delinquencies). It sure looks like the market is pricing for perfection over the next 12-plus months," Earle pointed out.
Could these make the market slide downward this year? Below are six factors that could make it happen.
The first factor is that the stock market is overvalued. Big technology stocks need to hang on, wrote the U.S. News. "From a common-sense viewpoint, the equity markets came very far, very fast in 2023 and early 2024," says Hugh Johnson, chairman emeritus of Graypoint LLC in Albany, New York. "In quantifying this risk, essentially, the S&P 500 is 14 percent above the level it should average in the current quarter, 6.7 percent above the level it should average in Q4 2024 and 0.5 percent above the level it should average in Q4 2025."
Second, key market benchmarks are triggering confusion. Earle said that stock market investors, whether retail or institutional, see the same things the rest of us see. "With the U.S. economy looking tepid, they must be pinning their hopes on the Fed sticking to cutting rates three times this year," he added and further stated that it's "somewhat ironic" that even if the Fed lowers rates three times this year, the actual economic impact would be mostly psychological. Also, consumer angst is rising. U.S. credit card delinquencies are rising, as consumers turn to credit to cover bills like utilities, cell phones, mortgages and rent.
Moreover, inflation is hanging around. The inflation numbers are unlikely to continue getting progressively better and better, as they did in 2023. "That will provide enough reason for the Federal Reserve to back away from making three interest rate cuts in 2024 and four cuts in 2025," Johnson said.
Lastly, government spending is soaring. The economic toll of the nation's battle with the Wuhan coronavirus (COVID-19) has been pegged at about $5 trillion and counting. According to the Committee for a Responsible Federal Budget, the U.S. national debt is a whopping $33 trillion, increasing by $1 trillion every 100 days.
Head over to MarketCrash.news to check updates on the imploding stock market.
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