2020 was one of the toughest years for the economy in all U.S. history. Nonetheless, the year ended with the S&P 500 up by 16%, which corresponds to a near-doubling of its average annual return since 1980. But considering that since the beginning of 1950, the S&P 500 has experienced 38 separate market corrections of at least 10%, it is possible to see a pattern of at least one sizable move lower in equities every 1.87 years. Which means that even though no one can tell for sure when a crash or correction will happen, how long it’ll last, or how sharp the decline will be, it’s always possible to see when one is coming.
According to billionaire investor Jeremy Grantham, the long bull market run on Wall Street that has been developing since 2009 has now turned into a full-fledged epic bubble. Grantham mentioned that the 30% recovery of the benchmark S&P500 from the March 2020 lows might indicate that the bubble is likely to be inflated for longer than usual, but the unsustainable overvaluations won’t last for much longer and soon the stock market bubble will burst.
He advised that this is what investors should await from a late-stage bubble – “an accelerating, nearly vertical stage of unknowable length – but typically short”. “Even if it is short, this stage at the end of a bubble is shockingly painful and full of career risk for bears,” he warned. The billionaire investor considers this as a late stage of a bubble because prices keep moving further away from the trend, at a sped-up pace and with a mounting speculative frenzy fuelling the growth of the bubble.
Just as Grantham, several wealthy investors are already aware that a market bubble is here, or at least near. According to a new survey from E-Trade Financial, just 9% of millionaires surveyed think the market is nowhere near a bubble. As for the rest of the affluent investor group, 16% think we’re “fully in a bubble”, 46% in “somewhat of a bubble”, and 29% think the market is approaching one. Additionally, the survey revealed that market volatility is being considered as one of the most riskiest factors, with 18% of millionaires viewing it as the biggest portfolio threat.
The apparent inconsistency of continued bullishness at a time of rising bubble fears is defying every risk thrown at the markets, as experts continue to defend the path of least resistance is up. That is to say, the stock market bubble is predicted to still move much higher before the burst, but if the economy fails to catch up with record-breaking valuations, one of the world’s top market experts, Mohamed El-Erian has warned that there will be “serious and widespread unintended consequences” if global output fails to return to pre-outbreak levels.
He stated that there is “no doubt” that company valuations have become “massively disconnected” from the economy and that the enormous amount of stimulus money issued by governments and central banks is inflating shares instead of actually boosting the economy. Similarly, David Neuhauser, managing director of hedge fund Livermore Partners, has affirmed that Biden’s spending plan could reconstruct the same financial conditions witnessed in the run-up to the 1929 Wall Street crash.
In other words, markets are inevitably headed to a crash, whether the pop happens as a consequence of the massive inflation or investor delirious speculation, historical patterns outline that the system is set to a correction. And bearing in mind that we’re at highs much higher than what was recorded in previous crashes, we’re about to watch the steepest market decline ever, which will trigger catastrophic consequences for both the economic and the financial sector. At this point, it’s just a matter of time, and we’re aren’t exactly short in determinant factors that could suddenly explode and blow up the markets with them.
For more videos visit Epic Economist website: https://www.epiceconomist.com