Don’t Rule Out a Stock Market Crash: Economists And Institutions Dislike Stocks Lombardi Letter 2019-05-23 13:59:47 stock market crash economists and institutions stock market Well-known economists and institutional investors could be making a case for a rigorous correction or an outright stock market crash. Here’s the full story. Stock Market Crash

Don’t Rule Out a Stock Market Crash: Economists And Institutions Dislike Stocks

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Famous Economists Making a Case for a Stock Market Crash Ahead

A stock market crash or a rigorous correction could be ahead. It can’t be stressed enough: Be very careful if you hold stocks in your portfolio.

Know that major institutions (those with a lot of buying power), well-known economists, and analysts (those with a lot of influence on institutional investors) are becoming skeptical about future returns. If the skepticism remains for long, it could be the trigger for the next stock market crash.


Look at what Jeremy Siegel, finance professor at Wharton School and well-known economist, said recently.

Before going into any details, keep in mind that around this time last year, he predicted that the Dow Jones Industrial Average (DJIA) could hit 30,000.

He is now urging investors to be cautious. “There are challenges that we face now,” he said. His outlook for the next year? “I’m looking flattish.” (Source: “Longtime bull Jeremy Siegel urges caution, says stocks could see a flat 2019,” CNBC, October 22, 2018.)

But this sort of sentiment doesn’t just end here. Robert Shiller, economist at Yale University, Nobel Prize winner, and well known for his theories on markets, is skeptical about the stock market as well.

Not too long ago, Shiller said, “We’re launching a trade war. Aren’t people thinking about that? Is that a good thing? I don’t know, but I’m thinking it’s likely to be bad times in the stock market.” (Source: “Nobel Prize winner Shiller sees ‘bad times in the stock market’ ahead,” CNBC, September 14, 2018.)

Institutions Rethinking Stock Market

As we see economists becoming skeptical, institutions with a lot of money are not big fans of the stock market either. This is not good.

Tommy Garvey, member of the assets allocation team at GMO—an investment manager that looks over assets of over $71.0 billion—said that U.S. stocks are 50% to 60% overvalued.

“It is easy to build a ‘good news’ story around US equities but all of that is already priced in. Corporate profits are strong and the valuation multiples that investors have attached to those earnings are too high. At some point, both profits and valuations are likely to revert closer to historical norms.” (Source: “Doubts grow over US equity outlook,” Financial Times, October 21, 2018.)

What Happens When Economists And Institutions Become Worried?

Dear reader, when you have big investors and economists getting worried, you start to hear a lot of questions about the direction of the stock market.

In the midst of this, you also see investors sell and take the “sidelines” approach. You start to hear a lot of “I am going to be on the sidelines and wait till a better opportunity comes in.”

If this mentality becomes prominent, you get a stock market correction.

In case the data starts to turn in the wrong direction, you actually start to see panic hit the market. And this is when you get a stock market crash.

I suspect we are at a point where the sidelines approach is gaining some popularity. This could be why we have seen key stock indices fluctuating a lot since the beginning of 2018.

We could see a stock market crash if the data supports a bearish case. Be very careful.

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