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An impending recession could lead to a “severe correction” in the US stock market, Gary Shilling told BI.
The top forecaster pointed to warning signs of a downturn, such as a weaker labor market.
A full-blown recession could wipe out investor speculation and send stock prices plummeting, he said.
Investors in the U.S. should prepare for a recession that could drag down the U.S. stock market this year. That’s what Gary Shilling, a leading forecaster and long-time financial analyst, says.
The Wall Street veteran was among the investors who recognized the subprime mortgage bubble in the mid-2000s. In an interview with Business Insider, he explained that he sees a recession coming by the end of the year as the labor market continues to weaken. This could be the final death blow to the stock market rally that has been fueled by investor overconfidence, Shilling said. That could send stocks down as much as 30 percent.
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Will prices fall soon?
Shilling pointed to the recent rise in risky assets such as stocks and cryptocurrencies. This is already a sign that prices will fall, especially if a general recession sets in in the USA. “If you look at all the speculation that’s been out there, it’s a sign of a lot of confidence. This is usually corrected significantly,” he predicted.
The US economy has already shown clear signs of weakness. Ultimately, high interest rates take their toll. The labor market is also weakening and the unemployment rate remained near a two-year high in March. Meanwhile, the churn rate in March to around two percent. This is a sign that employees are becoming aware of the difficult hiring conditions. They are less willing to leave their jobs than in the past.
On the one hand, the labor market is “obviously stumbling,” as companies are increasingly refraining from hiring new employees, says Shilling. He believes companies have retained more workers than necessary because of the labor shortage employers have faced during the pandemic. He also predicted that layoffs would escalate later this year and unemployment would peak at five to seven percent as the economy weakened.
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USA: Labor market situation points to recession
“Employers wanted to hold on to their workforce and even increase it. Because they thought that the situation would remain tense forever,” explains Shilling. “But they weren’t in short supply forever. The growth of the economy has slowed down.” He adds: “Employers are simply saving money.”
Job losses could hit Americans hard, especially as there are signs that many are worse off financially than they were a few years ago. Economic experts of the Fed von San Francisco estimated that consumers likely exhausted the last of their pandemic savings in March.
Meanwhile, some recession indicators have raised concerns about the economy for months. The 2-10 Treasury Yield Curve, the best-known recession indicator of the US bond market, has been signaling a downturn since July 2022. The Leading Economic Index The Conference Board, another indicator of economic strength, fell in April but is not yet in recession territory.
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“If these indicators weaken, the actual downturn may be protracted and volatile. But they are reliable enough. “I think a recession in the U.S. will begin this year if it hasn’t already,” Shilling said. The expert is known for his contrarian and often bearish assessments of the market. He previously told Business Insider that he wanted to actively contradict other Wall Street strategists because the consensus opinion in the markets is usually already devalued.
“I think people are too optimistic and hopeful. There is a lot of evidence to the contrary,” Shilling said.
Disclaimer: Stocks and other investments generally involve risk. A total loss of the capital invested cannot be ruled out. The articles, data and forecasts published are not a solicitation to buy or sell securities or rights. They also do not replace professional advice.
This article was translated from English by Susanne Ködel. You can find the original here.