Stocks are up sharply, but some bears are still sounding alarms about a bubble about to burst.
Bearish forecasters are predicting a crash as high valuations come back down to earth.
Some high-profile investors say stocks are sounding a number of warnings that a sharp decline is near.
Stocks continue to rise in 2024, but the bears have not stopped and some are warning that the market is in a bubble. on the verge of bursting.
Fears of a painful selloff have grown in recent weeks, especially as stocks continue to hit record highs. THE The S&P 500 and Nasdaq hit four consecutive closing highs this week, with tech titans like Apple And Nvidia continuing to surpass a market capitalization of $3 trillion.
But Wall Street bears warn that the artificial intelligence craze reflects the Internet bubble of the late 1990s – and the recent rise in stock prices bodes ill for investors.
Here’s what five forecasters have to say about the latest rally – and why they think the the stock market is headed for a fall.
Harry Dent
Stocks are in the middle of thebubble of all bubbles,” and stocks could lose more than half their value when inflated asset prices eventually burst, according to economist Harry Dent.
When the bubble finally bursts, the S&P 500 could fall as much as 86%, while the Nasdaq Composite could fall about 92%, Dent predicted in a recent interview with Fox Business Network.
This bubble, which formed over years of lax monetary and fiscal policy, is already showing signs of “topping off,” Dent added. Stocks are “barely” hitting new highs, and stocks have probably been inflated over the past 14 years, he estimated – far longer than most historical bubbles, which typically last five to six years.
“This has been going on for longer, so we should expect a bigger crash than that of 2008 and 2009,” he warned.
Dent has been arguing for a major stock market crash for years. In 2009, he wrote a book predicting a stock market crash and economic depression that he predicted could last 10 years or more.
Economics of capital
Stocks still have 20% to rise before the bubble burstsaccording to Capital Economics.
The research firm predicts that the S&P 500 could see a sharp correction after a rally to 6,500. That’s because the market can’t gain much more before prices pull back, according to John Higgins, the firm’s chief market economist. .
Stocks already appear to be in a late-stage bubble, Higgins said, pointing to the excessive hype surrounding artificial intelligence on Wall Street.
“Bubbles tend to inflate the most in their final stages, when excitement peaks,” Higgins warned.
John Hussman
Elite investor John Hussman thinks stocks could plunge up to 70% once the bubble bursts.
Hussman has warned of a sharp correction in stocks throughout the year and said in a recent note to clients that a handful of red flags signal trouble ahead.
According to his company’s most reliable valuation measure, the The S&P 500 appears to be at its most overvalued level since 1929just before the stock market plunged and the U.S. economy slipped into an economic depression.
“I continue to view the market’s advance over the past few months as an attempt to ‘catch the froth from yesterday’s bubble’ rather than another sustainable bullish advance in the market,” Hussman said in a recent note. “I also think the S&P 500 could lose something on the order of 50% to 70% at the end of this cycle, just to bring long-term expected returns back to the ordinary standards that investors associate with stocks.”
“Simply put, my impression is that the period since the start of 2022 corresponds to the prolonged peak of one of the three great speculative bubbles in US history,” he later added .
Richard Bernstein Advisors
In a recent note, Bernstein noted that only one restricted group of titles are supporting the market and that the current mega-cap leaders will give back most of their gains and see dismal returns going forward.
In a worst-case scenario, he predicted that the most valuable stocks could fall by 50%, generating losses comparable to those of the Internet crash.
“That’s what I think we’re looking at,” Bernstein warned. “This has been several years of significant underperformance.”
Still, it could prove a great opportunity for investors diversified into other areas of the market, Bernstein said. He stressed that his company is optimistic in virtually every other area of the market, with the exception of top seven mega-cap stocks.
UBS
The stock market is already flashing signs it’s in a bubbleaccording to UBS.
Generally, there are eight warning signs that a stock market bubble is forming, and six of them have already flashed, said the bank. Strategists pointed to signs such as growing pressure on corporate profits, shrinking market breadth and aggressive stock buying among retail investors.
The good news is that the bubble may not burst immediately. Stocks look more like the bubble that occurred in 1997 than the bubble of 1999, analysts say.
“We only invest for the bubble thesis if it is 1997 and not 1999 (which we think it is),” strategists said in a recent note.
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