Investors should brace themselves for a looming recession that could trigger a significant downturn in the stock market, according to top forecaster Gary Shilling.
In an interview with Business Insider, Shilling, renowned for his prescient calls including the subprime-mortgage bubble, predicted a recession by year-end as the job market weakens. He cautioned that this could spell trouble for the stock market, potentially resulting in a 30% drop.
Shilling highlighted signs of economic weakness, pointing to the recent surge in risky assets like stocks and cryptocurrency. He warned that this speculative fervor often precedes a market correction, especially in the face of an impending downturn.
The economy has already shown signs of strain, with high interest rates taking their toll. Weakness in the labor market, including a stubbornly high unemployment rate and declining quit rates, further indicate trouble ahead.
Companies, grappling with labor shortages exacerbated by the pandemic, have been holding onto excess workers. However, Shilling expects layoffs to increase as economic growth slows, potentially pushing unemployment to 5% to 7%.
Consumer finances are also under pressure, with savings from the pandemic largely depleted. Recession indicators, such as the 2-10 Treasury yield curve and the Conference Board’s Leading Economic Index, have been flashing warning signs for months.
Shilling’s contrarian view serves as a sobering reminder amid optimism in the market. As evidence mounts for an impending downturn, investors would do well to prepare for potentially turbulent times ahead.
