Expert warns of 80% drop after melting
- David Hunter sees a meltdown and subsequent collapse in the future.
- Hunter believes the S&P 500 will rise to 6000 before falling 80%.
- He said that rising interest rates in the bond market has already caused more damage than people realize.
David Hunter believes that the stock and bond markets are at a turning point.
He says bond yields are about to drop dramatically, and stocks will rise in return. Hunter, chief macro strategist at Contrarian Macro Advisors, believes the S&P 500 is set to jump 40-50% over the next three to six months.
This is in large part due to excessive negative emotions at the moment, Hunter said during an interview with Wealthion’s YouTube channel, and he will turn around.
“I totally realize I’m making a crazy call,” Hunter said.
“I really think this is kind of the last parabolic rally to the top and despite what’s happening with interest rates and despite what’s happening in Ukraine, because of the downtrend in the market.”
But sometime next year, he thinks markets will hit another inflection point – an even lower inflection point.
Hunter, who has been in the financial markets since 1973, said in recent interviews that after the “meltdown” phase, stocks would drop by up to 80% before the economy went into a “crash.”
He pointed to the tightening that had already occurred in the bond market – in anticipation of the tightening by
– as the ultimate cause of deflation as the economy has already become what he describes as fragile amid supply chain problems and high inflation for 41 years.
“I think the seeds have already been sown,” Hunter told Wealthion. “I think we did a lot more tightening than anyone realizes.”
In an interview with Insider on Friday, Hunter added: “I think the bond market looked at inflation and then started listening to the Fed’s rhetoric starting to realize that it’s not temporary.
“We have two-year rates that go from a quarter point to 2.5 or higher,” he said, adding that mortgage rates have also gone up. The federal funds rate tends to follow the yields of short-term bonds, such as those of two-year Treasuries.
In recent weeks, the bond market has signaled low confidence in the economy’s near-term outlook when 2-year Treasury yields rose above 10-year yields. One of the most reliable was the so-called inverted yield curve
Indicators over the past several decades, although reversals usually occur several months before a recession occurs.
Hunter has said in a number of interviews that he believes the magnitude of the decline in stocks will be in part due to the amount of leverage in the market in the form of derivatives and government debt.
Hunter’s opinions in context
Hunter’s calls, by his own admission, are somewhat extreme. Few of the strategists at major Wall Street banks have made outright calls for a recession, and if so, they were at the end of 2023 or early 2024. Similar interview calls
It was also less severe.
Deutsche Bank recently became the first large bank to say it expects a recession in the future, but they expect it to happen in late 2023. They also said that shares will fall 20% as a result.
Jonathan Golub, chief US equity strategist at Credit Suisse, told Insider last week that his best guess as to when the US recession will start would be early 2024, before or six months later. In the meantime, he said, stocks look attractive.
But other companies remain more optimistic while acknowledging the chance of a recession. Goldman Sachs, for example, says there is a 35% chance of a recession in 2022. Wei Li, chief global investment strategist at BlackRock, told Insider Friday that she remains bullish about US stocks, despite her view that The risks of the Fed tightening too much causing a pullback – not the base case – have increased since the beginning of the year.
The Fed itself puts the odds of a recession in 2022 at around 5%.
In general, Wall Street strategists are fairly optimistic about the market prospects this year, with the 2022 S&P 500 averaging around 4900. The index is currently around 4,293. However, Hunter is probably the only strategist who sees the index rising to 6000 this year. John Stoltzfus of Oppenheimer is the most uphill on the street at 5,330.
And Hunter’s description of the economy as “fragile” is debatable. The job market remains strong with strong job growth and a low unemployment rate of 3.6%. Consumer spending and household savings also remain favorable.
But there is uncertainty about how the Fed will respond to the ever-increasing inflation, which now stands at 8.5%. Some believe that the central bank will have to tighten until the economy enters a recession, assuming inflation does not slow down.
According to Hunter, they’ve already effectively done so.