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Stock market guru warns of Nvidia bubble and recession

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Stock market guru warns of Nvidia bubble and recession

Stock market guru Jesse Felder expects the stock markets to disappoint this year and a recession to occur. Getty Images

Nvidia is just a bubble, stocks could fluctuate and a recession will occur this year, says Jesse Felder.

The stock market guru said the microchip frenzy would fade and stock market returns would decline.

Prepare for slower growth, higher unemployment and stubborn inflation and interest rates, he said.

This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by a real editor.

The Nvidia hype is a bubble that will burst, stocks will disappoint for the next decade or longer, and a recession will occur this year, according to Jesse Felder. The experienced analyst behind “The Felder Report” has his arguments in the last„Thoughtful Money“Podcast episode presented.

He warned that the microchip buying spree would not last, that the market’s above-average returns would dry up and that the economy could sink into stagflation.

Living in a fantasy

Stocks have risen to record highs this year as investors bet that artificial intelligence, interest rate cuts and steady economic growth will boost corporate profits.

Felder, who managed money for about two decades before founding his market research firm, warned that stocks have become so expensive that their future returns are bound to be too low.

“The prices of financial assets will perform much worse than in the last ten, fifteen years,” he said. The hope for further outperformance is “an extrapolation of the untenable – that is the definition of a bubble,” he said.

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“This is exactly what is happening to Nvidia and Micron stock prices,” he continued, warning that it can be “extraordinarily painful” to buy high-flying stocks because they could suffer massive crashes.

The semiconductor industry is cyclical, meaning it fluctuates from boom to bust over time. In their haste, overconfident AI companies have ordered twice or three times as many chips from vendors like Nvidia as they need, meaning the market is being flooded, he continued.

“Everything goes down the drain, that’s the story of these companies,” said Felder.

Chipmakers like Nvidia could even go from explosive growth in revenue and profits to a decline, “which could mean real pain for a lot of these stock prices that have discounted a fantastic future,” Felder said.

The stock market guru also called the recent wave of insider selling of company shares a warning sign, pointing to Amazon’s Jeff Bezos, Meta’s Mark Zuckerberg and JPMorgan’s Jamie Dimon as examples. “This is a very, very dangerous stock environment,” he said.

Economic problems

Many on Wall Street expect the U.S. economy to avoid recession, that inflation and interest rates will fall this year and that unemployment will remain near historic lows.

However, Felder expects “a stagflation scenario rather than a soft landing or even a no-landing scenario.” The ex-trader and former hedge fund boss said the economy is unlikely to be “destroyed” like it was during the pandemic or the Great Depression from 2007.

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It will likely be a “slow burn” rather than a “really painful slump” in growth, he said. Unemployment could continue to rise and the economy could only contract in real terms as inflation more than offsets nominal growth, Felder said.

Felder pointed to aging populations in many Western countries and deglobalization trends such as reshoring as two structural forces that are likely to prevent inflation from falling too far.

He cited enormous government spending, the rising costs of servicing the national debt and the possible easing of the Fed’s two percent inflation target as further drivers of inflation. “There is overwhelming evidence that inflation will remain high relative to recent history,” Felder said.

If he’s right, that will likely mean interest rates stay high for longer, the economy grows more slowly and perhaps even shrinks, and assets like stocks perform worse than many experts predict.

Read the original article Business Insider.

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