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Legendary Economist Gary Shilling Predicts 40% Stock Market Crash as Recession Looms

  • Legendary economist Gary Shilling predicts the S&P 500 will fall 40% from peak to trough in this market cycle.

  • Shilling says a US recession may already be underway or starting now due to the Fed's interest rate hikes to combat inflation.

  • Trusted recession indicators like the inverted yield curve and Conference Board LEI are flashing warning signs.

  • High stock valuations coupled with a recession could lead to a meaningful market sell-off.

  • While consumers remain strong for now, spiking unemployment and a weakening consumer may further pressure stocks.

businessinsider.com
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### Summary The S&P 500 returns over the last one, five, and ten years are only slightly above their long-term averages, suggesting that the stock market is not unanchored from reality. However, the performance of long-term US Treasuries has been poor, with even 10-year Treasuries resulting in losses over the last five years. Slower economic growth may be on the horizon, but it remains uncertain whether it will be enough to bring down inflation rates. ### Facts - The S&P 500 returns over the last one, five, and ten years are only slightly above their long-term averages. - The performance of long-term US Treasuries has been weak, resulting in losses for investors even after accounting for coupon payments. - Slower economic growth may be on the horizon, but it remains uncertain if it will bring down inflation rates. - The nature of the stock market rally suggests that investors are still searching for buying opportunities rather than thinking about selling. - Energy, industrials, and financials have become favored sectors, while technology stocks have started to decline. - The Chinese economy is struggling, with retail sales and industrial production growth slowing down. - The Federal Reserve has expressed concerns about inflation but also noted downside risks to the economy. ###
After a strong surge in June and July, the S&P 500 index has experienced a significant decline in August, with tech stocks being hit particularly hard, as fears of rising interest rates and a slowdown in China weigh on the market.
The S&P 500 has fallen nearly 5% in August, and opinions on whether stocks will rebound are divided among Wall Street firms and market commentators, with some, like Goldman Sachs and Fundstrat, remaining optimistic while others, including Michael Burry and David Rosenberg, are bearish.
The Dow and S&P 500 ended slightly lower due to concerns about the Federal Reserve keeping interest rates higher for longer, while the Nasdaq finished barely in the green; the financial sector fell 0.9%, dragged down by an S&P downgrade of credit ratings of regional U.S. lenders, and investors are awaiting clarity on the rate outlook from Fed Chair Jerome Powell.
The S&P 500 has recovered 65% of last year's bear-market drop, but when adjusted for inflation it is only about 45%, highlighting the diminished buying power and implying implications for the economy and future Federal Reserve policy.
The S&P 500 and other major indices are showing bearish signals, with potential for a significant drop, while the dollar is expected to maintain its upward trajectory and strong economic data could lead to a breakout in interest rates. Additionally, Meta's stock is on a downward trend and the KBW NASDAQ BANK Index is at risk of further decline.
Wharton professor Jeremy Siegel predicts that the stock market will continue to rise into the end of the year, with the S&P 500 potentially surging 25% and gaining an additional 9% if the Federal Reserve acknowledges falling inflation and refrains from further interest rate hikes.
The S&P 500 could experience significant gains in the coming months following the end of the current rate hike cycle by the Federal Reserve, with historical data showing positive returns after previous cycles and strong economic indicators supporting this trend. Investors are advised to consider investing in an S&P 500 index fund or industry-leading stocks like Amazon.
The S&P 500 fell while the Nasdaq rose after U.S. inflation data met expectations, suggesting the Federal Reserve may pause its monetary tightening, while Salesforce shares climbed on a positive revenue forecast.
The S&P 500 rally is expected to fade as economic data supports a higher for longer monetary policy, with weaker job opening data and ADP job report sending rates down and a strong job report and ISM data pushing rates higher, creating challenges for the stock market as financial conditions tighten and leading to lower levels.
Goldman Sachs has lowered its probability of a U.S recession in the next 12 months to 15% due to positive inflation and labor market data, while also predicting a reacceleration in real disposable income and expecting the Federal Reserve to keep interest rates unchanged.
The S&P 500 had a good week, rising 2.5% and coming 1.6% below the 2023 high-water mark set in July; however, there is a possibility of a recession if the Fed keeps rates high for longer than necessary.
Renewed concern over the Federal Reserve's interest rate policy and the potential for another hike this year has led to lower S&P 500 futures and Nasdaq 100 futures, while Dow Jones Industrial Average futures are slightly up.
The US economy is predicted to enter a recession by spring, leading to a 25% or more crash in the S&P 500, according to economist David Rosenberg, who warns that American consumers are nearing their spending limits and rising home prices reflect a weak housing market.
John Hussman warns that stocks are overvalued and investors buying into the S&P 500 now are likely to experience abysmal returns for the next decade. He cites high valuations and poor investor sentiment as indications of a forthcoming steep sell-off, and predicts an annualized return of -4% over the next 12 years.
The US economy is facing a looming recession, with weakness in certain sectors, but investors should not expect a significant number of interest-rate cuts next year, according to Liz Ann Sonders, the chief investment strategist at Charles Schwab. She points out that leading indicators have severely deteriorated, indicating trouble ahead, and predicts a full-blown recession as the most likely outcome. Despite this, the stock market has been defying rate increases and performing well.
Despite its high valuation, a strategist predicts that the S&P 500 can still continue to rise.
Economist David Rosenberg warns that there could be a repeat of last year's stock market decline due to mounting risks, including downgrades by Fitch and Moody's, Chinese deflation, and an overvalued S&P 500.
Bank of America predicts that the S&P 500 could surge over 25% within the next year based on a bullish indicator, with low long-term profit growth expectations among analysts signaling potential gains.
Wall Street finished the week with a decline in stocks, as the S&P 500 posted its second consecutive losing week, with technology and retail sectors contributing to the slide, while investors await the upcoming Federal Reserve interest rate policy meeting.
The forecasted U.S. recession in 2024 is expected to be shorter and less severe than previous recessions, with the economy's interest-rate sensitivity much lower due to reduced leverage and elevated savings from the postpandemic environment, leading investors to consider positioning for investment opportunities that will drive markets into 2024.
The stock market's decline has intensified recently, leading to concerns about how far it could fall.
The S&P 500 is expected to rise 13% by June 2024, according to a historical correlation between first-half returns and subsequent 12-month gains, indicating a potentially bullish outlook for the stock market.
Bitcoin and the S&P 500 are likely to end the third quarter lower due to the strong case for owning bonds over stocks, with government bonds offering a higher return, making them more attractive than risk assets like cryptocurrencies.
The S&P 500 typically experiences a decline before US government shutdowns, but tends to rebound and gain in the following months; however, the current shutdown may add to short-term market volatility amidst already challenging economic conditions.
The recent decline in the US equity market is validating concerns about its lopsided nature, with a small number of top-performing stocks leading the market lower and the remaining companies struggling to make gains, potentially exacerbating losses in a rising Treasury yield environment.
The S&P 500 is likely to experience more pain in the stock market unless the rise in Treasury yields and the U.S. dollar comes to an end, based on technical charts and trends among index components.
The Federal Reserve's decision to maintain high interest rates has caused concern in the financial markets, with the S&P 500 and Bitcoin potentially underperforming; however, there appears to be a decoupling between the S&P 500 and Bitcoin, which could be attributed to factors such as regulatory concerns and the anticipation of a spot Bitcoin ETF introduction. This decoupling may favor Bitcoin.
Investors are concerned about the recent stock market decline due to surging oil prices, rising bond yields, and worries about economic growth, leading to a sell-off even in major tech companies and potentially impacting President Biden's approval ratings.
Investors are concerned about a potential showdown for the S&P 500 as stock market commentator, Heisenberg, shares a chart indicating bearish patterns and a major trend line off the October lows, suggesting a sharp drop in the index. Rising bond yields, climbing oil prices, and fears of slowing consumer spending are also factors contributing to investor unease.
The S&P 500 fell as investors reacted to an inflation report and adjusted their portfolios on the last day of a weak third quarter for stocks, with the benchmark index also on track to post its biggest monthly percentage drop of the year.
Fidelity Investments' global macro director believes that a recession could lead to a significant rally for Bitcoin, with the potential for prices to reach $96,210 by the end of 2025 if interest rates decline. He also suggests that Bitcoin's correlation with equities has decreased, making it a potential source of uncorrelated returns in the next market cycle.
The S&P 500 closed out the quarter with a 3.6% loss, attributed to factors such as rising interest rates, a slowing housing market, and businesses preparing for tough times, resulting in a slow decline in stocks. Additionally, the resumption of student loan payments and expectations of more rate hikes from the Federal Reserve are expected to impact consumer spending power and business cutbacks. However, as the year comes to an end, traders and investors may look forward to 2024 for possible rate cuts and a return of strength in the market.
The Federal Reserve's aggressive interest rate hikes have resulted in a decline in the profitability of S&P 500 companies, with the return on equity ratio falling this year, and the trend could worsen if interest rates remain high.
The stock market's decline has pushed the Dow into negative territory for the year, and the focus is now on the S&P 500's approaching level of support at 4,200.
The likelihood of the US avoiding a recession has decreased, as two factors, including a surge in interest rates and the potential for resurgent inflation, could push the economy into a downturn, says economist Mohamed El-Erian.
The possibility of a 50% crash in the S&P 500, a recession next year, and falling house prices are predicted by Jeremy Grantham, who also criticizes bitcoin as a scam and advises against investing in US stocks or real estate.
Bitcoin could potentially drop by more than 46% if there is a recession caused by the Federal Reserve's actions, according to crypto analyst Nicholas Merten.
The S&P 500 broke a four-week losing streak, but market breadth was poor and the small cap Russell 2000 fell into the red for the year, suggesting that higher interest rates are taking a toll on the economy and increasing the chances of a recession.
The S&P 500 experienced a 7.83% drawdown, but current volatility expectations are lower than past periods of similar declines, suggesting that the market is experiencing a normal correction rather than a bear-market-like drawdown.
Fundstrat's Mark Newton predicts that the S&P 500 will drop to 4,200 before recovering, presenting a buying opportunity for investors as the Fed is likely done hiking interest rates and market volatility is expected to be short-lived.
The U.S. stock market is currently trading at a discount to fair value, and Morningstar expects rates to come down faster due to optimism on inflation; strong growth is projected in Q3, but the economy may slow down in Q4, and inflation is expected to fall in 2023 and reach the Fed's 2% target in 2024. The report also provides outlooks for various sectors, including technology, energy, and utilities, and highlights some top stock picks. The fixed-income outlook suggests that while interest rates may rise in the short term, rates are expected to come down over time, making it a good time for longer-term fixed-income investments. The corporate bond market has outperformed this year, and although bankruptcies and downgrades may increase, investors are still being adequately compensated for the risks.
The S&P 500 has seen a strong bounce off its previous low, but it has yet to fully recover, and the recent rise in Treasury yields and geopolitical conflicts contribute to a cautious outlook on the market's future performance.