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Stock prices are on the decline, but there are still bears sounding the alarm that a bubble is about to burst.
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Bearish forecasters predict a crash as high valuations come back down to earth.
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Some big investors say stocks are issuing some warnings that a sharp pullback is near.
Stock prices will continue to rise in 2024, but the bears have not been silenced yet and some are warning that the market is in a bubble that is about to burst.
Fears of a painful sell-off have increased in recent weeks, especially as stock prices continue to break through to record highs. The S&P 500 and Nasdaq hit four consecutive all-time highs this week, with tech titans like Apple and Nvidia continuing to surpass the $3 trillion market cap mark.
But the bears on Wall Street warn that the enthusiasm for artificial intelligence is a reflection of the dot-com bubble of the late 1990s – and the recent rise in stock prices is a bad omen for investors.
Here’s what five forecasters have to say about the latest rally – and why they think the stock market is heading for a decline.
Harry Dent
Stocks are in the middle of the “bubble of all bubbles,” and stocks could lose more than half their value if 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.
That bubble, which has formed over years of accommodative monetary and fiscal policy, is already showing signs of topping, Dent added. Stocks are “barely” hitting new highs, and stocks have probably been inflated for the past fourteen years, he estimated — much longer than most historical bubbles, which typically last five to six years.
“It has been stretched at a higher level for longer, so you should expect a bigger crash than we got in 2008 and 2009,” he warned.
Dent has been calling for a major market crash for years. In 2009, he wrote a book predicting a stock market crash and subsequent economic depression, which he said could last a decade or more.
Capital economics
According to Capital Economics, stocks have another 20% to inflate before the bubble bursts.
The research firm predicts that the S&P 500 could see a steep correction after rallying to 6,500 points. That’s because the market can only gain so much more before prices retreat, said John Higgins, the firm’s chief market economist.
Stocks already look like they are in the late stages of a bubble, Higgins said, pointing to the excessive hype around artificial intelligence on Wall Street.
“Bubbles tend to inflate the most in their final stages, when excitement reaches a sort of fever level,” Higgins warned.
Johannes Hussman
Elite investor John Hussman thinks stocks could fall as much as 70% once the bubble bursts.
Hussman has been warning of a sharp correction in stock prices all year, saying in a recent note to clients that a handful of warning signs point to future pain.
According to his company’s most reliable valuation measure, the S&P 500 appears to be the most overvalued since 1929, just before the stock market plunged and the U.S. economy fell into an economic depression.
“I continue to view the market rally of the past few months as an attempt to ‘grab the froth of yesterday’s bubble,’ rather than a new, sustained bull market advance,” Hussman said in a recent note. “I also believe that the S&P 500 could lose something on the order of 50-70% during the completion of this cycle, simply to return expected long-term returns to the prevailing norms that investors associate with stocks.”
“Simply put, my impression is that the period since early 2022 includes the extended peak of one of the three great speculative bubbles in US history,” he later added.
Richard Bernstein Advisors
According to RBA’s Chief Investment Officer, Richard Bernstein, large-cap stocks are vastly overvalued and appear positioned for destruction.
In a recent note, Bernstein noted that only a small group of stocks are supporting the market and that current megacap leaders will give back most of their gains and see dismal returns going forward.
In a worst-case scenario, he predicted that the highest valued stocks could fall by 50%, causing losses comparable to the Internet crash.
“That’s what we’re looking at, I think,” Bernstein warned. “It has been several years of significant underachievement.”
Still, this could be an excellent opportunity for investors diversified into other parts of the market, Bernstein said. He noted that his company is bullish in virtually every other part of the market except the seven largest mega-cap stocks.
UBS
According to UBS, the stock market is already showing signs of a bubble.
Normally, there are eight warning signs that point to the formation of a market bubble, and six of them have already flashed, the bank said. Strategists pointed to signs such as increasing pressure on corporate earnings, shrinking market size and aggressive stock buying among retail investors.
The good news is that the bubble may not burst immediately. Stocks most resemble the 1997 bubble, not the 1999 bubble, the analysts said.
“We only invest for the bubble thesis if we are in 1997 and not 1999 (which we think is the case),” strategists said in a recent note.
Read the original article on Business Insider
