The stock market could be headed for a 44% crash – and an early withdrawal could pay off, Paul Dietrich said.
The chief investment strategist at B. Riley Wealth Management moved his clients from stocks to bonds in 2000, and from stocks to cash, bonds and gold in 2007, he recalled in his comment from April market.
Dietrich’s clients missed out on a massive rise in stocks over the next year. But they also escaped the terrible blows of the collapse of the dot-com and housing bubbles that followed.
They ended up gaining 7% before fees during the 2000-2002 recession, when the S&P collapsed 49% and the Nasdaq plunged 78%. They lost about 6% gross of fees during the 2008-2009 recession, but that performance outpaced the S&P’s 57% decline over the same period.
“Despite the fun and excitement of participating in the current Mardi Gras-style stock market bubble, completely unrelated to stock market fundamentals, let’s assume that an investor could miss the point of a 49% or 57% decline in S&P 500 index, then return to the stock market when leading economic indicators and long-term moving averages indicate the recession is over,” Dietrich said.
He noted that the “extremely overvalued” S&P index would need to fall 8% to return to its 200-day moving average, and that the index has declined an average of 36% during past recessions.
So, Dietrich said the benchmark index could suffer a 44% rout to around 2,800 points – a level it last reached at the height of the pandemic in 2020.
Dietrich also explained why he still expects a slight recession this year. He pointed to sky-high stock valuations, charts flashing red, a historic jump in the so-called Buffett Indicator, the risk of interest rates staying high for longer and gold prices hitting record highs. record levels, all signs that the market and the economy are heading towards difficulties.
The Wall Street veteran added that the recession has been delayed by huge government spending, consumers accumulating debt to make purchases and a historically tight job market that is showing signs of cracking.
Dietrich’s latest warnings invite skepticism, as the stock market and economy have defied his and other pessimists’ dire predictions for years now.
Additionally, famous investors like Warren Buffett have warned against trying to time the market because doing so is virtually impossible, and investing regularly or “in US dollars” in an index fund is a far superior strategy.
Yet several of Wall Street’s biggest players, including JPMorgan CEO Jamie Dimon, Goldman Sachs CEO David Solomon, and Citigroup CEO Jane Fraser, have all warned that markets are not pricing in the risks posed by threats such as inflation, recession and geopolitical conflicts.
businessinsider
