Renowned Wall Street economist Gary Shilling, dubbed the “prophet of Wall Street,” has issued a serious warning regarding a possible economic recession and a potential 20-30% drop in the US stock market following the burst of the bubble.
In light of Federal Reserve Chairman Powell’s dovish stance and the continued hype surrounding artificial intelligence, all four major US stock indexes, including the NASDAQ, the Dow Jones, and the S&P 500, hit new record highs last night.
However, Gary Shilling, known for his accurate market predictions, has recently sounded an alarm regarding the US stock market and economy. He predicts that due to overvaluation, the US economy may face a recession in the coming months.
Shilling is concerned about the significant portion of the stock market value held by a small number of stocks, warning that this concentration implies a negative sentiment among investors towards other parts of the stock market and the overall economy. If the bubble bursts, he expects the S&P 500 index to fall by 20-30% or even more, plummeting below 3,500 points.
Shilling also points to various indicators, such as the continuous decline in leading economic indicators, weakened consumer confidence and demand, and small businesses reducing hiring plans, all suggesting that an economic recession is approaching. He mentions that there has only been one soft landing since World War II, and the likelihood of a recession this time is “very high.”
According to Shilling, data from the past seven economic recessions shows that, on average, a recession occurs 26 months after the Federal Reserve starts raising interest rates. It has been about two years since the first rate hike of this cycle, which seems to imply an impending economic downturn.
Despite Shilling’s warnings about the risks that the stock market and economy may face, both are unexpectedly performing well at present.
However, considering his decades of experience and long-term track record, many investors are still willing to listen to his opinion. Shilling’s warnings offer an important perspective, especially in the current backdrop of global economic uncertainty, for those who are concerned about macroeconomics and market trends.
Furthermore, in a report in March, this seasoned economist described “speculative frenzy” as destined to face a significant blow and referred to cryptocurrencies like Bitcoin as “pure speculative tools.”
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