Paul Dietrich, the chief investment strategist at B. Riley Wealth Management shared that the stock market will likely face a decline more brutal than those in the early 2000s and 2008.
From the last century there is at least one bigger crash, and it was bad.
„Hey, there’s a bubble!”
Dietrich’s commentary means he thinks that the market is in a bubble driven by speculation and excitement around a few tech companies like Nvidia and Microsoft, rather than real fundamentals such as corporate earnings growth.
He pointed to high valuations, including the S&P 500’s price-to-earnings ratio and the inflation-adjusted Shiller PE ratio, as signs of overpricing. Not a good sign at all.
Dietrich compared the current excitement around artificial intelligence to the dot-com bubble of the late 1990s, raising concerns about a similar bust.
New AI startups popping up each day, Nvidia reach new records.
He noted the jump in the famous Buffett Indicator, a measure favored by Warren Buffett that looks at the ratio between a country’s total stock market capitalization and its GDP.
With the indicator at 188%, close to the 200% mark, it suggests stocks are overpriced, and are in dangerous territory, potentially playing with fire. And after that comes the burn.
Zombie economy
Beyond the stock market, Dietrich also shared his concerns about the U.S. economy’s health too, stating that years of low interest rates and high government spending have only postponed a downturn, not prevented it.
Which isn’t the exact definition of health. He predicted that the Federal Reserve will need to keep rates high to combat inflation, and the government will likely have to raise taxes to manage its deficit.
Dietrich warned that interest rates may stay high for years to control inflation, and taxes may rise to address the growing budget deficit. From the viewpoint of the citizens? It’s like a nightmare.
He suggested that a typical recession might see the S&P 500 fall by about 36%, but this time the drop could be as big as 48%, bringing the index down to around 2,800 points, levels not seen since the early COVID pandemic fearmongerig.
Stay safe
Dietrich also mentioned that other institutional investors seem to be preparing for a recession.
Maybe they’re too saw the signs. Gold did a 20% rise to new record highs last year, which he attributed to institutions buying gold, as safe haven asset, in anticipation of a major market correction or crash.
And this crash could happen due to the overvalued stock market and a slowing economy.
The increased demand for gold from the People’s Bank of China also contributes to the rising prices, showing its important role in the global gold market.
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