FX168 Financial News (North America) — On Tuesday (6/25), Paul Dietrich (Paul Dietrich), chief investment strategist at B. Riley Wealth Management, said that when the stock market bubble bursts and the US economy falls into recession, the S&P 500 index may fall by half. #2024投资策略 #
In his latest monthly review, Dietrich said, “I believe the impending recession will cause the stock market to decline worse than what it experienced in 2000 and 2008.”
Dietrich detailed warning signs that stocks are seriously overvalued and are about to experience a pullback. For example, he pointed out that the price-earnings ratio of the S&P 500 index and the inflation-adjusted Schiller price-earnings ratio (excluding past recessions) are at their highest level in decades, while the benchmark index's dividend yield is at an all-time low of 1.35%.
He also pointed out that the recent rise in the market is mainly due to investors' excitement about a few stocks such as Microsoft and Nvidia, and their hope that the Federal Reserve will cut interest rates later this year, rather than fundamental factors such as rising corporate profits.
In fact, Dietrich compared the craze for artificial intelligence to the craze of the internet during the internet bubble. He also mentioned Buffett's indicator, which has soared to 188% this year — close to the 200% mark. In Warren Buffett's view, buying stocks is “playing with fire.”
Furthermore, the strategist pointed out that in the past year, the price of gold rose by about 20%, reaching a record high. He attributed this to institutional investors buying safe-haven assets because they expect “a sharp correction or collapse in the stock market due to overvaluation of our stock market and a slowdown in the underlying economy.”
On the economic side, Dietrich believes that decades of excessive fiscal spending and artificially low interest rates have stopped the recession.
He predicted that in order to curb stubborn inflation, interest rates will remain high for the next few years, and the government will be forced to raise taxes to resolve the growing budget deficit, thereby lowering the prices of assets such as stocks and real estate, leading to a recession.
“No one seems to notice that the economy is cooling down and that economic risks are everywhere,” he said. “I still think the economy is likely to fall into a slight recession this year.”
Dietrich pointed out that during a recession, the S&P 500 usually falls by about 36%, and the index needs to fall 12% from the current level of about 5,450 points to return to the 200-day moving average. As a result, he warned that the index could plummet 48% to around 2,800 points — the lowest level since the COVID-19 crisis in spring 2020.
The Wall Street veteran is one of several top forecasters predicting that the stock market will be hit hard and there will be a recession. It is worth noting, however, that Dietrich has been issuing warnings for several months, yet neither the market nor the economy are in serious trouble.