According to a report by securities firm China, legendary investor and economic consulting firm A Gary Shilling& Co President Gary Shilling's latest warning is that prepare for a one-third drop in the stock market and an imminent economic recession in the United States.
Shilling stated in an interview that the US stock market will decline by 30-40% from its peak. The S&P 500 index may plummet to around 2900 points, the lowest level since May 2020.
Shilling has been known for accurately predicting the "black swan" of the market over the past 50 years, predicting a decline in the stock market as the US economy falters.
Shilling believes that the US economy may soon fall into recession. He mentioned that when considering factors such as the inverted yield curve, weak leading economic indicators, and the Federal Reserve's commitment to suppressing inflation, it is difficult to avoid an economic recession.
He said that during economic downturns, the overall economy often only slows down slightly, but corporate profits typically plummet by 20-30%, and the stock market also experiences a similar decline.
He predicts that with the long-term trend of globalization driving down prices, the inflation rate will decrease in the coming years. He said that once the economy becomes noticeably weak and inflation no longer poses a threat, the Federal Reserve will start cutting interest rates next year.
Before founding his own consulting firm in 1978, Shilling served as the first Chief Economist of Merrill Lynch. He accurately predicted the collapse of the real estate boom in the first decade of this century and profited from it.
Shilling stated that he is shorting stocks and commodities in exchange traded funds (ETFs). At present, the "biggest foam" concerned is American commercial real estate, especially office buildings, hotels and shopping centers. These foam have begun to burst.
On Friday, several Federal Reserve officials delivered speeches, believing that although there is increasing evidence that inflation issues are easing, the possibility of further interest rate hikes if necessary cannot be ruled out.
On the same day, Boston Fed Chairman Collins said in an interview, "In order to lower the inflation rate to the 2% target in the appropriate time, patience and determination are needed. I will not rule out the possibility of further tightening policies
The official added, "I understand people's tendency to like good news, and there are indeed some good news in some economic data. I think we need to confirm this, but what the Federal Reserve needs now is to persist in fighting inflation
The October report released on Tuesday showed that the inflation rate in the United States has dropped to 3.2%. Even more encouraging is that in the five months to October, the core inflation rate, excluding food and energy, was 2.8%, just one step away from 2%, far lower than the 5.1% inflation rate in the first five months of this year.
However, Collins stated that the recent data is somewhat "noisy". We need to take a comprehensive look at this data and see promising news, which is certainly great, but I still pay attention to the complete information we have obtained and evaluate the correct practices in real time
Collins believes that progress has been made in stabilizing the labor market and tightening the financial environment, and it is important to be patient and recognize that this is not yet the time to declare victory.
Collins also talked about the recent easing of financial conditions related to the decline in US bond yields, which theoretically means less market constraints on the economy, which may increase the pressure on the Federal Reserve to raise interest rates again.
Chicago Federal Reserve Chairman Gullsby stated on Friday, "Inflation is our focus. Although the data has improved, it is still too high, and we will make every effort to defeat inflation
San Francisco Fed Chairman Daley also stated that it is uncertain whether inflation can reach the 2% target, and it is too early to announce a victory over inflation. The central bank's policy debate is now focused on what constitutes sufficient restrictions and how long this stance will be maintained.