Harry Dent, a well-known American economist, said that U.S. stocks may experience a sharp correction, and the degree of the collapse may even be more severe than what investors experienced during the financial crisis.
The Harvard Business School MBA founder of HS Dent Investment Management has been predicting for years that a major crash in U.S. stocks and a subsequent economic depression will follow, and he recently warned again about market conditions.
Dent said the stock market looked to be in a "bubble" as overly loose monetary and fiscal policies over the past decade have inflated asset prices.
He estimates that when the bubble finally bursts, the S&P 500 (SPX) could fall 86% and the Nasdaq Composite (COMP) could fall 92%. He said U.S. stock "heroes" like chipmaker Nvidia could fall 98%, which means trillions of dollars in market value evaporated.
“The stock market is going to crash. It’s showing signs of peaking,” Dent told Fox Business Network on Sunday, noting that stocks are “barely” reaching new highs.
“We’d have to see a 40% or so drop in the stock market to say the bubble has finally burst,” he warned. “Once the momentum gets that big, I think it’s going to be hard to stop.”
Dent estimates that the U.S. stock bubble has been forming for 14 years, which is much longer than most bubbles in history. Most bubbles usually last five or six years before bursting.
That’s partly because stocks have been fueled by a massive amount of economic stimulus since the 2008 recession, he said. He estimated that markets have benefited from about $27 trillion in stimulus since the financial crisis, based on the government’s accumulated budget deficits and the amount of cash it has printed since then.
At the same time, the Federal Reserve has kept interest rates ultra-low for much of the past decade, helping to boost asset prices.
“The stock market has been going up for so long that this crash is bound to be worse than 2008 and 2009,” Dent said. “This is effectively the second tech bubble,” he added, referring to the dot-com bubble of the early 2000s.
Dent predicts that investors could see the impact of the Fed's aggressive tightening measures in early to mid-next year as it rapidly tightens monetary policy to control inflation.
Higher interest rates are generally bad for stocks and can tip the economy into a downturn by tightening financial conditions.
Dent said, "What follows a bubble is not recessions, but depressions... I can tell you that there has never been a bubble in history that did not end in tragedy, and this bubble is larger and lasts longer." Depressions generally refer to economic contractions that are larger and last longer.
To be sure, Dent's view is an outlier on Wall Street, where a growing number of investors are beginning to look to the prospect of a soft landing for the economy. The U.S. economy remains on solid footing, with gross domestic product continuing to post slightly slower but still positive growth. U.S. job gains are also solid, with the latest employment report easily beating expectations.
The article is forwarded from: Jinshi Data