Bloomberg TV
- Stocks could plummet by as much as 30%, a legendary Wall Street forecaster says.
- Gary Shilling expects a recession to hit imminently, if one isn't underway already.
- Shilling says he's betting on Treasury bonds and the US dollar, and against stocks and commodities.
Prepare for stocks to plunge by a third and a recession to strike imminently, a legendary market forecaster has warned.
"I've been of the opinion that stocks — and I came out with this forecast early last year — would decline about 30% to 40% peak to trough," Gary Shilling, the president of A. Gary Shilling & Co., told "The Julia La Roche Show" in an interview aired this week.
"You'd have a further decline of about 30% from here to get that 40% overall decline, peak to trough," he said.
Shiller's forecast suggests the S&P 500, which hit a record high of nearly 4,800 points in January last year, could nosedive to around 2,900 points, its lowest level since May 2020. The benchmark stock index fell by 18% including dividends last year, but has rallied 17% this year.
The veteran economist, known for correctly calling several major market trends over the past 50 years, expects stocks to fall because the US economy is faltering.
"We probably do have a recession coming shortly, if we're not already in it," Shiller said, pointing to the inverted yield curve, weakness in leading economic indicators, and the Fed's commitment to crushing inflation.
"When you look at that combination of things, it's pretty hard to escape a recession," he said.
Shiller served as Merrill Lynch's first chief economist before launching his own economic-consulting and investment-advisory firm in 1978. He noted the overall economy tends to only soften a little during recessions, but slash corporate profits typically plunge by 20% to 30%, and stocks suffer a similar drop.
He forecast lower inflation in the years ahead as the long-term trend of globalization pushes down prices. He suggested the Federal Reserve will only cut interest rates deep into next year, once the economy's weakened significantly and it's clear that inflation is no longer a threat.
The market prophet — who predicted and profited from the collapse of the mid-2000s housing boom — said he's currently betting on Treasury bonds and the US dollar. On the other hand, he's placed wagers against stocks via exchange-traded funds, and against commodities by shorting copper.
Shiller also revealed the "biggest bubble" on his radar today is commercial real estate — specifically office buildings, hotels, and shopping malls — and he believes it's starting to burst.