Stock investors are staring down a bearish trifecta that could spark a 12% market drop by October, strategist says
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Bill Blaine said stock markets could see a double-digit decline by the fall amid a host of headwinds.
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The veteran strategist said stocks are overvalued and face risks from rising interest rates and elections.
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Blaine doesn’t touch big tech stocks and is only bullish on “boring” investments.
The stock market’s sharp rally could come to a halt by the fall.
Bill Blaine, founder of Wind Shift Capital and a longtime strategist, expects stock prices to fall 7% to 12% by October.
The pullback will be driven by a trio of threats that have been looming in the stock market for months, suggesting that the stock rally is nearing its upper limit, Blaine said.
Signs of an impending correction are already beginning to appear, Blaine told Business Insider in an interview. Chip stocks fell. This week after the Biden administration proposed tougher trade rules against China. The S&P 500 also suffered.with the benchmark index down 2% over the past trading week.
“All of these things could lead to a potential correction,” Blaine said. “You can feel it in the market around you when a correction happens, because instead of falling off a cliff, you’re rolling down a slope.”
This decline could be caused by a number of things: rising geopolitical tensions, rising inflation in the economy, or uncertainty surrounding the economy. black Swan But the risks are very high, and a downturn is likely by October of this year, Blaine predicted.
Blaine avoids investing in big tech stocks, and currently only trusts names that are “boring, boring, predictable.” Blaine added that he has been accumulating gold and other commodities.
“I look at the fundamentals,” Blaine added. “In times of crisis, there are always opportunities.”
Bermuda Triangle in Stocks
While stocks have managed to break a series of record highs this year, a powerful mix of headwinds has been building throughout, Blaine said.
On the other hand, the stocks are overvalued, with valuations soaring due to the AI craze. The hype around AI stocks has sent investors into a tailspin. Pumping billions into the sector Over the past year, but the trend is eerily reminiscent of the early 2000s, Blaine said, when Passion for Internet Stocks It exploded and sent the Nasdaq Composite down 78% from peak to trough.
Technology stocks now make up the highest percentage of the S&P 500 since the early 2000s, according to an analysis by Societe GeneraleBy one measure, the stock looks the most expensive since 1929When investor enthusiasm peaked and sent stocks into a tailspin, as noted investor John Husman recently put it.
“I’ve watched big tech companies for 40 years and seen one thing after another come along,” Blaine said, referring to other failed tech trends. metaverse“Ultimately, everyone in these companies comes together thinking, ‘Yes, this is the new thing that we’re going to get very rich with,’ but they all under-deliver and over-promise.”
Another risk to stocks is interest rates, where borrowing costs appear poised to stay high, Blaine said. higher for longer.
Some forecasters remain optimistic that inflation will decline to the Fed’s 2% target, prompting central banks to cut interest rates. But inflationary pressures remain in the economy, Blaine said, pointing to trends such as Deglobalization And supply chain disruptions.
Inflation is likely to remainrelated“Blaine expects interest rates to fall by about 3%. That means interest rates will only fall slightly, with the Fed cutting rates by 1 to 2 percentage points at most,” he added.
“There are a huge number of people in the financial markets who don’t understand that zero interest rates and very low interest rates are not normal,” Blaine added. “I certainly see the potential for a correction as the market begins to realize that interest rates are only going to come down by almost cosmetic means.”
The final danger Blaine is watching is the upcoming presidential election, which contains a number of uncertainties that could lead to dire consequences. Mixture stocks“Blaine said.”
Many of the economic policies pursued by Biden and Trump have the potential to fuel higher prices, such as Trump’s Tax Cut Proposalor Biden’s trade restrictions Blaine said these policies could lead to “spikes” in inflation and job losses in the United States.
He added that both presidential candidates also appear willing to add more to the US debt stock. High levels of debt Higher US interest rates could also stoke inflation and discourage foreign investors from buying US Treasuries, meaning less capital flows into the economy.
“I think people will say, ‘We have to start looking at risk-averse trades. Not just in terms of temporary risk-aversion, but also in terms of a long-term strategy.’ I think we’re not going to see a market crash, but we’re going to see a big correction,” he added.
Blaine is one of a growing group of bearish Wall Street forecasters who believe that excitement over artificial intelligence and interest-rate cuts by the Federal Reserve can only carry stocks so far.
Strategists in Morgan Stanley, StifelAnd Richard Bernstein Advisors They expect a pullback of some magnitude soon, with the more extreme forecasters calling for stocks to fall. Sharp correction up to 70%.
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