Expert warns of an 80% drop after a merger

  • David Hunter sees collapse and further collapse ahead.
  • Hunter thinks the S&P 500 will rise to 6,000 before falling 80%.
  • He said rising rates in the bond market have already done more damage than people realize.

David Hunter believes that the stock and bond markets are at a turning point.

Bond yields are about to fall significantly and stocks will soar as a result, he says. Hunter, the chief macro strategist at Contrarian Macro Advisors, believes the S&P 500 should rise 40% to 50% in the next 3-6 months.

This is largely because sentiment is too bearish right now, Hunter said during an interview with the Wealthion YouTube channel, and it will change.

“I am fully aware that I am making a crazy call,” Hunter said.

“I really think this is a once-in-a-generation final parabolic rally to a top and despite what’s going on with interest rates and despite what’s going on in the Ukraine, and really because of all the pessimism in the market.” , he added.

But sometime next year, he thinks the markets will hit another turning point, a much more bearish one.

Hunter, who has been working in financial markets since 1973, has said in recent interviews that after the “meltdown” phase, stocks will fall as much as 80% before the economy enters a “crisis.”

He cited the adjustment that has already occurred in the bond market, in anticipation of the adjustment by the


Federal Reserve

– as the ultimate cause of the recession given that the economy is already what he described as fragile amid supply chain problems and the highest inflation in 41 years.

“I think the seeds are already sown,” Hunter told Wealthion. “I think we’ve done a lot more fine-tuning 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 and started recognizing that it’s not transitory.

“We had 2-year rates go from a quarter point to 2.5 or more,” he said, adding that mortgage rates also rose. The fed funds rate tends to track shorter-duration bond yields, such as those on the 2-year Treasury note.

yield curve

2-year Treasury yields rose above 10-year Treasury yields in March, signaling a recession may be looming.

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In recent weeks, the bond market signaled low confidence in the near-term outlook for the economy as 2-year Treasury yields rose above 10-year yields. The so-called inverted yield curve has been one of the most reliable


recession

indicators over the past few decades, although inversions typically occur many months before the recession hits.

Hunter has said in several interviews that he believes the magnitude of the stock’s decline is due in part to the amount of leverage in the market in the form of derivatives and government debt.

Hunter Viewpoints in Context

Hunter’s calls, by his own admission, are pretty extreme. Few strategists at the major Wall Street banks have made explicit calls for a recession, and if they have, it has been in late 2023 or early 2024.


bear market

have also been less severe.

Deutsche Bank recently became the first major bank to say they expect a recession, but anticipate one by the end of 2023. They also said shares would fall 20% as a result.

Credit Suisse’s chief US equity strategist Jonathan Golub told Insider last week that his best estimate of when a US recession would start would be early 2024, plus or minus six months before or after. In the meantime, however, stocks look attractive, he said.

But other companies remain more optimistic while acknowledging the possibility of a recession. Goldman Sachs, for example, says there’s a 35% chance of a recession in 2022. And BlackRock’s chief global investment strategist Wei Li told Insider on Friday that she remains bullish on U.S. stocks, despite Despite his view that the risk of the Fed getting too tight and triggering a recession, which is not his base case, has increased since the start of the year.

The Fed itself puts the odds of a recession in 2022 at around 5%.

probability of recession


Federal Reserve Bank of Cleveland


Overall, Wall Street strategists are fairly optimistic about the market’s outlook this year, with the S&P 500’s average price target for 2022 at around 4,900. The index currently stands at around 4,293. Still, Hunter is probably the only strategist who sees the index rising to 6,000 this year. Oppenheimer’s John Stoltzfus is the most bullish on the street at 5,330.

Hunter’s characterization of the economy as “fragile” is also debatable. The labor market remains strong with strong job growth and a low unemployment rate of 3.6%. Consumer spending and household saving also remain supportive.

But there is uncertainty about how the Fed will respond to persistently rising inflation, now at 8.5%. Some believe that the central bank will be forced to tighten until the economy enters a recession, assuming inflation does not decline.

According to Hunter, they have already effectively done so.

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