Even though the S&P 500 is less than 1% away from hitting a new all-time high, Wall Street's big shorts are still worried about the future.
Reliable recession indicators such as Sam's Rule have recently sounded the alarm that job market growth is slowing and any interest rate cuts by the Federal Reserve may not be enough to prevent a recession, according to pessimistic forecasters.
Among these big shorts, some predict a recession in the United States, and some even predict that U.S. stocks will fall by 70%.
Mark Mobius: Economic warning signs are flashing for the first time in more than 90 years
Billionaire investor Mark Mobius said the decline in the M2 money supply since its peak in 2022 is the largest decline in nearly a century. Mobius said:
“The main problem is that if the M2 money supply has declined since April 2022 and has not kept pace with economic growth, there may be less money available to fuel the current economic expansion and allow Wall Street to create another bull market.”
Mobius recommends that investors hold 20% in cash so they are ready to “buy the dip.” He says, “Look for companies with little or no debt, modest earnings growth, and strong returns on capital, and be ready to re-enter the market.”
Steve Hanke: Recession could occur by early 2025
Economist Steve Hanke warned that in addition to the contraction in the M2 money supply highlighted by Mobius, other signs point to a recession coming by early 2025.
“The U.S. will enter a recession later this year or early next year, which is why we think the inflation numbers will continue to decline,” Hanke predicted in an interview with wealth advisory firm Wealthion.
These micro-level indicators include a steady rise in the unemployment rate to 4.3%, the highest level since the outbreak of the epidemic, a continued slowdown in retail sales, and weak housing market and manufacturing activity.
“If you look at the micro data, it’s consistent with the macro monetary picture I just gave you of a slowing economy, a recession, and inflation continuing to fall. If you look at the data for individual companies or sectors of the economy, it looks like a slowdown is coming,” Hanke said.
Jon Wolfenbarger: Recession could cause stock market to plunge 70%
If a painful recession hits the economy while valuations are high, U.S. stocks could fall 70%, according to Jon Wolfenbarger, founder of BullAndBearProfits.com.
Wolfenbarger highlighted in a recent report that it’s not just the inverted yield curve and flashes of Sam’s Rule that suggest a recession is imminent, but other lesser-known signals that the job market is cooling in a way that’s consistent with a recession.
That included a drop to 0% year-over-year change in job growth. In the past, negative year-over-year changes in job growth have signaled recessions, Wolfenbarger said.
Another job market concern is the continued decline in the average workweek, which is currently around 34.2 hours. Any further decline in the indicator would send a signal not seen since 2008 and 2020, the two years when the U.S. economy suffered painful recessions.
Finally, manufacturing employment, based on the ISM index, continues to decline, suggesting the unemployment rate may have room to rise, Wolfenbarger said.
Given the stock market's stretched valuations, these factors lead Wolfenbarger to believe the S&P 500 could ultimately fall as much as 70% from current levels.
While the job market shows signs of slowing, not everyone on Wall Street is worried about a potential recession or stock market crash.
Goldman Sachs said in a new report that fears of a recession are "overblown," and stressed that the U.S. consumer remains strong and corporate earnings growth continues to be strong.
“Reports of concerns about the U.S. consumer are greatly exaggerated,” said Jan Hatzius of Goldman Sachs. “Our quantitative measures of consumer sentiment from corporate conference calls show sequential improvement, with sales growth for consumer-facing companies slowing but still healthy, and real income growth showing solid positive momentum across all income groups.”
Additionally, the Federal Reserve is shifting toward a more dovish stance, with a high probability that a rate cut is imminent.
The bank also said that once the results of the November presidential election are known, trillions of dollars of idle funds could flood into the stock market and push the S&P 500 up 7% to 6,000. Goldman Sachs said:
“The S&P 500 will hit a new high of 6,000 in the fourth quarter, driven primarily by November and December.”
Article forwarded from: Jinshi Data