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The S&P 500 is at risk of falling 44% to a four-year low, according to Paul Dietrich.
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The top strategist explained that selling stocks well before they crash can yield outsized returns.
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Dietrich predicted a mild recession in the US this year based on several warning signs and threats.
The stock market could be headed for a 44% crash – and getting out early could pay off, Paul Dietrich said.
The chief investment strategist at B. Riley Wealth Management shifted his clients from stocks to bonds in 2000, and from stocks to cash, bonds and gold in 2007, he recalled in his April market commentary.
Dietrich’s clients missed out on a huge increase in stock prices over the next year. But they also escaped the dizzying blows of the subsequent collapse of the dot-com bubble and the housing bubble.
They ended up making 7% before fees during the 2000-2002 recession, when the S&P plummeted 49% and the Nasdaq plunged 78%. They lost about 6% gross in fees during the 2008-2009 recession, but that performance exceeded the S&P’s 57% decline over the same period.
“Despite the fun and excitement of participating in the current Mardi Gras-like stock market bubble, which is completely disconnected from stock fundamentals, suppose an investor were to take the brunt of a 49% or 57% drop in the S&P 500 index could miss and then end up back on the market. in the stock market when leading economic indicators and long-term moving averages indicate the recession is over,” Dietrich said.
He emphasized that the “wildly overvalued” S&P would need to fall 8% to return to its 200-day moving average, and that the index has retreated an average of 36% in previous recessions.
So Dietrich said the benchmark could suffer a 44% drop to around 2,800 points – a level it last reached at the height of the pandemic in 2020.
Dietrich also explained why he still expects a mild recession this year. He pointed to heady stock valuations, red-flashing charts, a historic jump in the so-called Buffett Indicator, the risk of interest rates staying higher for longer and gold prices hitting record highs as signs that the market and economy are headed for trouble.
The Wall Street veteran added that the recession has been slowed by massive amounts of government spending, consumers racking up debt to make purchases, and a historically tight labor market that is showing signs of cracking.
Dietrich’s latest warnings warrant skepticism, as the stock market and economy have defied his and other doomsayers’ dire predictions for years.
Furthermore, famous investors like Warren Buffett have warned against attempting to time the market, as that is virtually impossible, and investing steadily or ‘dollar-cost averaging’ in an index fund is a much better strategy.
Yet several of Wall Street’s biggest players, including JPMorgan CEO Jamie Dimon, Goldman Sachs CEO David Solomon and Citigroup CEO Jane Fraser, have all warned that markets are considering the risks posed by threats such as inflation, recession and geopolitical conflict. don’t price in.
Read the original article on Business Insider
