Expert Predicts a Stark Plunge in S&P 500
The S&P 500, amidst its impressive bull run, is facing a dire forecast according to a top strategist.
Threat of a Market Bubble Burst: Paul Dietrich, the chief investment strategist at B. Riley Wealth Management, has sounded the alarm regarding the S&P 500’s future. In his commentary titled ‘The Stock Market Bubble Is About to Burst — Look Out!’, Dietrich foresees a potential 49% freefall in the index when the next recession strikes.
Dietrich’s caution is rooted in the stock market’s current overvaluation, which he describes as “bizarrely overvalued.” He highlights multiple red flags, such as the S&P 500’s historically high price-to-earnings ratio, unusually low dividend yield, and unrealistic earnings growth expectations.
He asserts, “This is how far this bubble has gone.”
“The stock market is essentially banking on earnings growth that has only occurred at a 3% rate in the past, typically during an economic recovery from a severe recession.”
He also points to the ‘Buffett Indicator’ surpassing a 180% reading, indicating a significant overvaluation of the US stock market relative to the economy’s size. Dietrich notes that the recent uptick in gold prices signifies investors seeking solace from expensive stocks and a teetering economy.
Despite recent positive economic signals like decreasing inflation and stable GDP growth, Dietrich and other analysts remain steadfast in their belief of an impending stock market crash and recession.
Significance of the Warning: Dietrich’s alert aligns with other experts’ apprehensions about the stock market’s trajectory. Earlier this year, Dietrich cautioned that market movements were being predominantly steered by investor sentiment and FOMO, potentially leading to a substantial downturn if a recession strikes.
In separate forecasts, technical analyst Milton Berg predicted a potential 60% plunge in the S&P 500, fueled by mounting recession fears.
Nevertheless, not all prognosticators share these grim views. A survey by the National Association of Business Economics (NABE) in February revealed that merely 25% of business economists and analysts expect a recession in the US in 2024. Any downturn is presumed to be triggered primarily by external factors, like a conflict involving China, rather than internal economic challenges such as rising interest rates.