A prominent market strategist, Gary Shilling, President of A. Gary Shilling & Co., has issued a stark warning for imminent market downturns.
In a recent interview on "The Julia La Roche Show," Shilling anticipates a substantial decline in stock values, projecting a 30% to 40% drop from peak to trough. This forecast aligns with his prediction made early last year and suggests a significant market correction ahead.
Shilling's analysis points to the likelihood of an impending recession, if one hasn't already begun. His investment strategy in this climate leans towards favoring Treasury bonds and the US dollar, while adopting a bearish stance on stocks and commodities.
According to Shilling, the S&P 500, which reached a high of nearly 4,800 points in early 2021, could plummet to around 2,900 points, a level not seen since May 2020. Despite an 18% fall last year, factoring in dividends, and a subsequent 17% rally this year, Shilling maintains a pessimistic view on the stock market's trajectory.
Shilling's reputation as a seasoned economist and market analyst is built on his history of accurate market predictions over the past half-century. He attributes the expected decline in stock prices to a weakening US economy, citing indicators such as the inverted yield curve, faltering leading economic indicators, and the Federal Reserve's aggressive stance on inflation.
The economist, who began his career as Merrill Lynch's first chief economist and later established his own consulting and investment advisory firm in 1978, notes that while the broader economy typically experiences moderate downturns during recessions, corporate profits often see a sharper decline of 20% to 30%, with stocks experiencing similar losses.
Looking ahead, Shilling forecasts a trend of lower inflation, driven by the continuing effects of globalization on pricing. He anticipates that the Federal Reserve will likely reduce interest rates only after the economy has significantly weakened and inflation concerns have subsided.
Shilling, who successfully predicted and capitalized on the mid-2000s housing market collapse, is currently investing in Treasury bonds and the US dollar. He is also taking positions against stocks through exchange-traded funds and against commodities by shorting copper.
Additionally, Shilling identifies commercial real estate, specifically office buildings, hotels, and shopping malls, as the current "biggest bubble" in the market, and believes that this bubble is beginning to burst.
