James Leynse
- From stocks to commercial real estate, several parts of financial markets are on shaky ground.
- Experts have warned equities could crash up to 50% and crypto faces impending doom.
- Here are the 10 wildest predictions about asset prices and the economy over the past quarter.
From stocks and cryptocurrencies to commodities, it appears a growing number of assets are in choppy waters.
Jeremy Grantham has warned stocks could crash as much as 50% as an "everything bubble" bursts, while "Dr. Doom" economist Nouriel Roubini has raised the alarm on an impending "crypto apocalypse" as the SEC tightens its grip on the digital asset space.
While various headwinds are buffeting assets, the Federal Reserve's interest rate hikes seem to be weighing the most on financial markets.
The Fed has raised benchmark interest rates to upwards of 4.75% from almost zero 12 months ago — the steepest jump in US borrowing costs since the 1980s – to squash surging inflation. Higher rates encourage saving over spending, which can tame the pace increases. But they can also dampen demand, pull down asset prices, and elevate the risk of a recession.
Here are the 10 wildest predictions about stocks, crypto, commercial real estate and the US economy over the past quarter from leading market commentators:
Stocks: US equities could crash 50% - or surge 20%
Legendary investor Jeremy Grantham has topped the board for an extreme prediction about US stocks. The market historian has forecasted the S&P 500 could tank as much as 50% this year to about 2,000, as an "everything bubble" bursts.
Grantham said the prices of stocks, bonds, real estate, fine art, and other investments surged to unsustainable highs during the COVID-19 pandemic.
Market experts Stephanie Pomboy and Larry McDonald echoed Grantham's view – but with a less bearish prediction. While the pair expect stocks to crash as much as 30%, McDonald said the plunge could happen over the next two months as higher interest rates choke demand.
However, the bears aren't the only ones turning heads with their eccentric forecasts. Market bull Tom Lee of Fundstrat has predicted stocks will climb 20% this year, as historically, down years have more often been followed by a strong rebound than a flat performance.
Crypto: an 'apocalypse' is coming for digital assets
"Dr. Doom" economist Nouriel Roubini isn't hopeful about the crypto industry. The famed economist said a "crypto apocalypse" is coming as the SEC cracks down on the digital asset space with stricter regulation.
"Finally the SEC will have the [funding] to go after all the other crypto - and other - crooks," he wrote. "The crypto apocalypse is coming!" Roubini said, referring the reports the the SEC is seeking additional funding to police misconduct in the crypto industry.
Commercial real estate: prices could plunge 40% from their peak
Over in the commercial real estate sector, Morgan Stanley Wealth Management's chief investment officer expects prices to plunge as much as 40% from their peak in a worse crash than the 2008 financial crisis.
That's due to a string of factors, including work-from-home trends, higher interest rates and tighter lending standards following Silicon Valley Bank's collapse, which make it harder for investors to refinance a mountain of looming debt.
"MS & Co. analysts forecast a peak-to-trough CRE price decline of as much as 40%, worse than in the Great Financial Crisis," Lisa Shalett said in the weekly Global Investment Committee note.
"More than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points," she added.
Similarly, billionaire investor Leon Cooperman told CNBC the sector would be the next victim of the banking turmoil. "I think it will spread into commercial real estate as banks become more reluctant to lend," Cooperman said. "That seems to be the whipping boy right now, [but] we'll survive this," he added.
Economy: The US is falling into a 'doom loop'
When it comes to the overall US economy, there are some pretty striking forecasts out there. One that has raised eyebrows comes from Roubini.
In a Project Syndicate op-ed, he warned that the US economy is entering a "doom loop" as a vicious cycle of high inflation, increased debt burdens, and financial instability threaten to engulf the country.
"A severe recession is the only thing that can temper price and wage inflation, but it will make the debt crisis more severe, and that in turn will feed back into an even deeper economic downturn," he said. "Since liquidity support cannot prevent this systemic doom loop, everyone should be preparing for the coming stagflationary debt crisis."
Roubini has also said the US economy is heading into a "Bermuda Triangle" of risk.
Meanwhile, veteran researcher Luke Gromen has warned the US economy is facing an "everything problem" — and the Fed only has bad options to choose from as it tries to crush inflation with tanking the economy.
"It's not a banking system problem," he said. "It's a US Treasury G7 sovereign debt, balance of payments problem," Gromen said.
"Treasuries underpin everything," Gromen continued. "It's the collateral for the whole system. So if we're going to have a Treasury problem, we're going to have an everything problem."