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  • Stocks are in a sweet spot but bears still fear a bubble is near bursting. Here’s what 5 forecasters are saying about a potential crash.

    Stocks are in a sweet spot but bears still fear a bubble is near bursting. Here’s what 5 forecasters are saying about a potential crash.

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    • Stocks have been on a tear but there are still bears sounding alarms of a bubble about to pop.

    • Bearish forecasters predict a crash as lofty valuations come back down to earth.

    • S ome big-name investors say stocks are flashing a number of warnings that a sharp pullback is near.

    Stocks just keep climbing in 2024, but the bears haven’t been silenced and some are warning that the market is in a bubble on the verge of bursting.

    Fears of a painful sell-off have been rising in recent weeks, particularly as stocks continue to break through to record highs. The S&P 500 and the Nasdaq hit four straight all-time closing highs this week, with tech titans like Apple and Nvidia continuing to soar past a $3 trillion market cap.

    But the bears on Wall Street warn that the enthusiasm for artificial intelligence mirrors the internet bubble of the late 90s — and the recent run-up in stock prices is a bad omen for investors.

    Here’s what five forecasters have to say about the latest rally — and why they think the stock market is headed for a fall.

    Harry Dent

    Stocks are in the midst of the “bubble of all bubbles,” and equities could lose more than half of their value as inflated asset prices finally burst, according to the economist Harry Dent.

    When the bubble finally pops, the S&P 500 could drop as much as 86%, while the Nasdaq Composite could drop by around 92%, Dent predicted in a recent interview with Fox Business Network.

    That bubble, which has formed over years of loose monetary and fiscal policy, is already showing signs of “topping,” Dent added. Stocks are “barely” making new highs, and equities have likely been inflated for the past 14 years, he estimated — far longer than most historical bubbles, which typically last for five to six years.

    “It’s been stretched higher for longer, so you have to expect a bigger crash than we got in 2008 and 2009,” he warned.

    Dent has been making the case for a major market crash for years. In 2009, he wrote a book predicting a stock market crash and ensuing economic depression, which he said could last for 10 years or more.

    Capital Economics

    Stocks have another 20% to inflate before the bubble bursts, according to Capital Economics.

    The research firm is predicting the S&P 500 could see a steep correction following a rally to 6,500. That’s because there’s only so much more the market can gain before prices pull back, according to John Higgins, the firm’s chief market economist.

    Stocks already look like they’re in a late-stage bubble, Higgins said, pointing to excessive hype surrounding artificial intelligence on Wall Street.

    “Bubbles tend to inflate the most in their final stages as the excitement sort of reaches fever-pitch,” Higgins warned.

    John Hussman

    Elite investor John Hussman thinks stocks could plunge as much as 70% once the bubble bursts.

    Hussman has been warning of a steep correction in stocks all year, and said in a recent note to clients that a handful of red flags are signaling pain ahead.

    According to his firm’s most reliable valuation metric, the S&P 500 looks to be at its most overvalued since 1929, right before the stock market plunged and the US economy spiraled into an economic depression.

    “I continue to view the market advance of recent months as an attempt to ‘grasp the suds of yesterday’s bubble’ rather than a new, durable bull market advance,” Hussman said in a recent note. “I also believe that the S&P 500 could lose something on the order of 50-70% over the completion of this cycle, simply to bring long-term expected returns to run-of-the-mill norms that investors associate with stocks.”

    “Put simply, my impression is that the period since early 2022 comprises the extended peak of one of the three great speculative bubbles in US history,” he later added.

    Richard Bernstein Advisors

    According to RBA’s chief investment officer, Richard Bernstein, large-cap stocks are way overvalued and look positioned for a wipeout.

    In a recent note, Bernstein noted that only a narrow group of stocks are propping up the market and that today’s mega-cap leaders are going to give back most of their gains and see dismal returns going forward.

    At its worst, he predicted the most highly valued stocks could drop 50%, generating losses that rival the dot-com crash.

    “That’s what I think we’re looking at,” Bernstein warned. “It’s multiple years of significant underperformance.”

    Yet, that could end up being an excellent opportunity for investors who are diversified in other areas of the market, Bernstein said. He noted that his firm is bullish in practically every other area of the market except for the top seven mega-cap stocks.

    UBS

    The stock market is already flashing signs that it’s in a bubble, according to UBS.

    Typically, there are eight warning signs of a market bubble forming, and six of them have already flashed, the bank said. Strategists pointed to signs like growing corporate profits pressure, falling market breadth, and aggressive stock buying among retail investors.

    The good news is that the bubble may not immediately burst. Stocks are looking most similar to the bubble that occurred in 1997, rather than 1999, the analysts said.

    “We only invest for the bubble thesis if we are in 1997 not 1999 (which we think we are),” strategists said in a recent note.

    Read the original article on Business Insider

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  • How the market’s forgotten stocks could lead a ‘once-in-a-generation’ buying opportunity

    How the market’s forgotten stocks could lead a ‘once-in-a-generation’ buying opportunity

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    • A once-in-a-generation opportunity is coming for the stock market, according to investment chief Richard Bernstein.

    • That’s because profits are about to accelerate for companies throughout the stock market.

    • It could usher in a decade of sagging returns for current market leaders, and huge gains for the rest of the market.

    Brace for a big investing opportunity that’s about to come for stocks — and not in an area of the market investors may be expecting.

    That’s according to Richard Bernstein, the CIO of Richard Bernstein Advisors, a $16 billion asset manager.

    He argues that while the Magnificent Seven mega-cap firms have dominated the S&P 500’s gains in 2023, less high-profile stocks are now primed to see big returns over the next decade.

    That coming pendulum swing in market leadership is a “once-in-a-generation” buying opportunity brewing among forgotten and under-loved areas of the market, Bernstein says. Speaking with Insider, Bernstein said he sees it similar to a period like the 2000s, when the biggest leaders in the S&P 500 shed value while underdog sectors like energy and emerging markets saw “monster returns.”

    “Despite profits growth becoming more abundant, investors generally continue to focus on the so-called Magnificent 7 stocks. Such narrow leadership seems totally unjustified and their extreme valuations suggest a once-in-a-generation investment opportunity in virtually anything other than those 7 stocks,” he wrote in a note this week.

    So what makes this time different from other periods of changing market leadership?

    Bernstein — who was previously the chief investment strategist at Merrill Lynch — says his expectation for a stock boom isn’t to be mistaken with something like the two years of the pandemic market rally, which featured narrow leadership by so-called reopening names, similar to what’s now happening with the Magnificent 7. His thesis hinges on a broader swath of the market getting a lift by a resilient economy and surging corporate profitability.

    “Are there really only seven growth stories in the entire global equity market? And then, the second way to say it is, are these seven really the best growth stories in the entire global equity market? The answer to both of those questions is no,” he said.

    Of the 130 US companies that saw at least 25% earnings growth in the 12 months through October 15, Amazon was the only Magnificent 7 stock represented.

    Just 1 Magnificent 7 firm posted more than 25% earnings growth as of October.Just 1 Magnificent 7 firm posted more than 25% earnings growth as of October.

    Just one Magnificent 7 firm posted more than 25% earnings growth as of October.Richard Bernstein Advisors

    Meanwhile, profits at companies throughout the rest of the market are on the rise, which puts investors in a position to ditch super-expensive mega-cap stocks for more attractively priced shares. Corporate profits look to have hit a trough in 2023 and are heading up into 2024, according to MSCI All Country World Index data.

    Profits have troughed and look on track to accelerate into 2024.Profits have troughed and look on track to accelerate into 2024.

    Profits have troughed and look on track to accelerate into 2024.Richard Bernstein Advisors

    “Because growth is starting to accelerate, it makes less and less sense to pay a premium for growth. History suggests that investors become comparison shoppers for growth as it becomes more abundant, so a movement toward the broader and cheaper market seems consistent with history,” RBA added in the note.

    Bernstein predicts the enormous gains enjoyed by mega-cap stocks will be whittled down as investors flock to more attractively priced areas of the market, such as small-cap and mid-cap stocks. The Magnificent Seven firms wiping out 20%-25% of their value while the Russell 2000 gains 20%-25% over the next decade would be realistic, in his view.

    “They’re so depressed on the other side of the seesaw that you can get huge returns,” Bernstein said, adding that RBA was overweight in virtually every area of the market other than the Magnificent Seven stocks.

    Bernstein isn’t alone in his bullishness. Other forecasters are pointing to big gains ahead for the broader market. In a note this week, Bank of America analysts said that an indicator with a nearly 100% track record is flashing signs that the S&P 500 is in for a 16% gain in 2024. Historical trends also point to strong profits ahead of investors as the stock market sees a rare bullish pattern of gains and losses this year.

    Read the original article on Business Insider

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