A 30-year market veteran says the stock market looks “very fragile” and the economy could enter a year-long recession

A market veteran says a bear market and recession are coming.Thomson Reuters

  • One long-time market veteran predicts a bear market and recession in the United States.

  • Jon Wolfenbarger pointed to factors such as falling profits and an inverted yield curve.

  • He said the prolonged inversion of the yield curve indicated a longer recession.

Longtime market watcher and strategist Jon Wolfenbarger expects stocks to plummet and the U.S. economy to slip into a long recession.

In a note published on Monday, the 32-year investing veteran noted that multiple economic indicators are signaling a recession, deteriorating earnings, overvalued stocks and “unusual” trends similar to those seen in tech stocks in the early 2000s. Rational Prosperity” warning. bubble.

He said the Conference Board’s leading economic index continues to decline at an annualized rate, which only occurs during a recession.

the most important is, Inverted yield curve This is one of the best-known recession predictors, having been accurate in the past eight recessions, but it has been inverted for the longest period of the past fifty years.

“The depth of the most recent yield curve inversion is only matched or exceeded by the major recessions that preceded the Great Depression and the mid-1970s and early 1980s,” said Wolfenbarger, the site’s founder. Bull and bear market profits ” and a former banker at J.P. Morgan. “This is not a comforting sign, to say the least.

The strategist added that the 10-year and three-month bond yields are still inverting today at about 1.29%, and history shows that inverting for too long will lead to a longer recession than many expect.

The Conference Board predicts the recession will last into the final two quarters, but Wolfenbarger disagrees.

“Depending on the duration of the yield curve inversion, we expect this to likely continue for at least a year,” he maintained.

A pessimistic picture for stocks

Wolfenbarger believes it’s not just the economic outlook that’s bleak, he’s bracing for the start of a new bear market due to worsening earnings prospects and stretched valuations.

“Consistent with these bearish leading indicators, all four regional purchasing managers’ indexes (PMIs) reported so far for January have been very weak,” he wrote in a note, adding that most banks’ recent earnings reports Neither met expectations.

As shown in the chart below, regional PMIs generally lead Russell 2000 EPS.

Profit picture worsensProfit picture worsens

Profit prospects dimmed.Trahan Macro Research

Furthermore, while the “Big Seven” — Apple, Amazon, Tesla, Microsoft, Nvidia, Alphabet and Meta — raised fourth-quarter earnings per share by 4%, the broader S&P 500 declined by 11%. %.

“A market this narrow is not a bull market, regardless of the overall price index,” Wolfenbarger said.

The top seven stocks and the wider stock marketThe top seven stocks and the wider stock market

How the Big Seven’s profit prospects compare with the rest of the S&P 500.Bull and bear market profits

Regardless, in his view, large technology stocks currently appear to be overvalued and overbought, and their influence has fueled “irrational exuberance” similar to the early 2000s, when the Nasdaq plunged about 80%.

Strategists at European asset management giant Amundi, which manages about $2 trillion in assets, expressed similar sentiments on a panel last week, saying The Big Seven will underperform in the coming year.

“[T]Wolfenbarger maintains that the market will most likely hit new bear market lows. “Most investors didn’t see this coming because they were misled by the continued strength of a handful of large tech stocks. They’ve forgotten how much these stocks are worth.” “Stocks will fall in 2022. We believe they will soon. Be reminded of how much overvalued tech stocks can fall during a recession.”

Read the original article business insider

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