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Warnings about a looming stock market crash have grown louder this week as inflation levels soared and investors are getting increasingly concerned about Fed tapering. Since hitting bottom in March 2020, the S&P 500 has rallied by more than 45%, and it just hit a new record high last week, now up more than 1% for the year. However, there are many reasons to believe that the rally is unsustainable and that overvalued stocks could face a reckoning and collapse soon. Even though many market watchers and financial strategists in Wall Street see that stock valuations are extremely extended and will end up canceling returns in the long-term, no one sees a stock market crash as sharp as the one David Hunter is calling for taking place this year as inflation spirals out of control.
The chief macro strategist at Contrarian Macro Advisors, argues that the US economy is in the middle of a massive “bust” consisting of two phases. Fase one was the initial bear market and short-lived recovery witnessed last year. We’re now in the second phase of the bust, according to Hunter, which will lead us to a much steeper downturn than the first phase. The expert outlines that the government’s and the Fed’s stimulus measures have failed to boost many sectors of the economy that needed fiscal support. As a result, hundreds of thousands of businesses have gone bankrupt, and thousands more are still on the line. That’s why Hunter Hunter predicts we’ll see much more insolvency during the second phase.
We will witness is “a bear market of historic proportions,” culminating with the S&P 500 around 800 – yes, you heard that right. “Basically the biggest bear market since the ‘29 crash,” Hunter highlights. This downfall will occur very rapidly. “Faster than what we saw in 2008/9. We can go from peak to trough in less than six months”. The coming crash will be a result of decades of debt buildup and other forms of leverage. “This dynamic worked great on the way up, which is why you had the highs we had, but they really punish you on the way down — and they also speed up any declines,” the investor explained.
The 48-year market veteran believes that the Fed will be forced to tighten policy much sooner than most investors anticipate. Hunter has a very specific vision of where markets could go in the months ahead. Up until this point, his predictions have been accurate. He said it before and reiterated this week that he believes the S&P 500 will top in mere weeks from now. And even though the topping process might keep investors’ hopes up for a while, as stocks may test their highs again after peaking, when the fall approaches, he said, “stocks will begin their descent toward a 65-80% drop from around 4,500 levels”. “So I believe in the next few months, you’ll see. I’ve been calling from 4,200-4,500 on the S&P — I think you’ll see that this year and probably by this fall. And melt up means it’s going to go parabolic. It’s going to get even steeper than it’s been out of the March trough,” he said.
“I’ve been of the belief that inflation is going to get to a point where the Fed’s going to have to tighten way sooner than people are anticipating, and that it will — because of the fragility in the global system — it will lead to a much faster, much steeper decline than anybody expects,” he concluded. Once again, his prediction seems to be right on track, especially considering that the Fed announced on Friday that they plan to begin tapering by year-end as opposed to previous statements ensuring that the taper process would only start in 2023. In response, stocks faced another jump as investors took the statement as a sign of economic strength and as proof that more strict tightening remains months away in the future.
But Hunter believes the Fed is going to be forced to take drastic action than just reducing the volume of bonds they’re buying per month, which right now is $120 billion. As for when the stock market crash will happen, the market veteran believes stocks are close to a peak, and a subsequent burst will unfold over the next two-to-three months. However, he argues, if inflation indicators continue to jump higher than expected, prompting a more serious Fed reaction than anticipated and blindsiding investors, the stock market bubble will explode way before they have time to run for the exits, resulting in what can be the greatest combined wealth loss in world history. Beware the risks because things are rapidly changing and a stock market crash of major proportions is just a matter of time.”