Who Is Predicting a Stock Market Crash and Why?
Since the onset of the COVID-19 pandemic, there has been much speculation about a potential stock market crash. The fact is the pandemic led to widespread economic uncertainty and instability. And as we enter the final months of 2022, more and more people are beginning to voice their concerns about the stock market.
Many prominent figures in the financial world are warning of an impending crash. While it's impossible to say for sure whether or not they're right, it's essential to understand their reasoning.
In this article, we'll look at some of the most prominent individuals predicting a stock market crash and the evidence they're using to support their claims.
Let's delve right in.
Michael Burry is an American hedge fund manager who famously predicted the subprime mortgage crisis of 2008. In recent months, he's been warning that another financial crisis is on the horizon. Burry has pointed to several factors that he believes could trigger a market crash.
Firstly, he believes that the Federal Reserve's quantitative easing program is creating an asset bubble. Secondly, he believes that corporate debt levels are too high and that interest rates are bound to rise eventually. And finally, he thinks that the stock market is overvalued and due for a correction.
Burry believes that, within a few years, the S&P 500 could sink to less than 1,900 points. That's a 53 percent decline.
Veteran investor Jeremy Grantham, co-founder and chief investment strategist at asset management firm GMO, also predicts tough times ahead for the stock market.
Grantham believes that the current bull market is ending and that we're in store for a prolonged bear market. He points to many factors, including high valuations, low-interest rates, and excessive optimism.
Grantham sees the recent stocks' rebound as nothing more than a passing repricing phase. He believes the market will soon enter a period of mean reversion, where prices revert to their long-term averages. He expects the S&P 500 to fall by around 50 percent. In the past, super bubbles have preceded market declines of at least that amount.
Robert Shiller is an American economist and Nobel Prize, laureate. He's best known for his work on asset bubbles, and he's been warning about a stock market bubble for quite some time.
Shiller pointed out that the CAPE ratio, which is a measure of stock market valuations, is currently at its second-highest level in history. The only time it was higher was just before the stock market crash of 1929.
Shiller has also warned that, like the housing bubble of 2008, the current stock market bubble could have devastating consequences. He believes that a market crash is inevitable and that we're currently in the late stages of a long bull market.
Guard Your Investment Against a Potential Stock Market Crash
With prominent figures sounding the alarm that a stock market crash could be on the horizon, it's crucial to take stock of the situation and understand the risks.
While it's impossible to say for certain whether or not a crash will occur, the fact is that the conditions are ripe for one. So, if you're invested in the stock market, now's the time to take steps to protect your portfolio.
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Alpesh Patel OBE