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- Expect the S&P 500 to tumble 30%, recover, then suffer a historic crash, David Brady warned.
- He predicted the Federal Reserve would shore up the market before the election.
- The analyst said economic and geopolitical forces would cause a market collapse after the race ends.
Prepare for stocks to plunge 30%, rebound before the presidential election, then crash to their lowest level in 14 years, a markets analyst warned.
The S&P 500 is poised to plummet from over 5,000 points to an 18-month low of 3,500 points, David Brady said on the latest "Thoughtful Money" podcast episode.
Brady is a money manager, former foreign exchange trader, and the author of "The FIPEST Report" which analyzes metals and miners. He argued that stocks are massively overvalued, investors face much greater downside risk than potential upside, and a sell-off looks assured.
However, he predicted the Federal Reserve would step in to reverse the coming decline by cutting interest rates and growing its balance sheet — especially as the Biden administration will want a strong stock market and economy going into the November election.
However, he cautioned the rebound wouldn't last given mounting domestic and international pressure on the economy.
"My two cents is short term, 20-30% drop, but then the Fed responds as it always does and the market goes up," Brady said. "After the election, stocks are going to get hammered."
"I expect the stock market to drop because of what's going on in the economy and elsewhere in the world," he said about his anticipated post-election decline.
Brady's list of concerns includes inflation climbing to 3.5% over the past two months, meaning the Fed might keep rates higher for longer. He also flagged an uptick in bankruptcies, car repossessions due to auto-loan defaults, credit-card delinquencies, and a slide in house prices.
"Those are signs to me that the economy is on life support," he said, adding that multiple foreign wars and pressure on the banking sector contributed to a gloomy backdrop.
"I believe the market is plateauing as well, and there are certain signals that I'm watching that will tell me it's time to get the heck out of Dodge," Brady said. Those signals include a decline in the S&P below 5,000 points or a deinversion of the yield curve, he noted.
"They'll all eventually bring down the most overvalued stock market we've seen perhaps since the Great Depression," he said about the myriad headwinds.
As for Brady's post-election forecast, he suggested the S&P could nosedive to about 1,000 points, erasing more than 14 years' worth of the index's gains and returning it to 2010 levels.
"I do see that we could get at least an 80% correction this time around," he said.
Brady isn't alone in predicting doom. Michael Burry of "The Big Short" fame, GMO cofounder Jeremy Grantham, and renowned forecaster Gary Shilling have all issued dire warnings about what lies ahead for markets and the economy.
Still, it's worth underscoring that the US economy and stocks have largely defied naysayers. Stocks hit record highs earlier this year, while inflation has cooled significantly, unemployment remains near historic lows, and growth has been robust.