The following video is brought to you courtesy of the Epic Economist YouTube Channel. Click the video below to watch it now.
Although 2022 started on a hopeful note of new promises and new beginnings, our old problems have continued to follow us. And in Wall Street, things are starting to look quite ugly. It appears that the wheels have come off the bull-market wagon, and several indexes have significantly tumbled on the last few days, with the tech sector recording the worst start in over a decade — a major signal that a broader stock market crash is fast approaching. Market watchers, insiders, and veteran investors have been warning since November that risky assets that have propped the stock market bubble to extraordinary levels over the past two years would be the first to go down at the end of the bullish cycle. And now that has become pretty evident, as the tech bubble bursts and the sector faces acute losses.
One of the financial analysts who correctly predicted previous crashes, Harry Dent, has recently explained that the sharp losses that occurred up until this point are just the beginning, because the sell-off of risky assets will come in waves, and the first wave is likely to push stocks down around 40%, but the broader stock market crash that will lead us to a bear market is going to be much more aggressive, totaling up to a loss of 90% — a very similar outcome to what happened during the dot-com burst of 2000. In a recent interview, Dent said that we’re on the verge of the biggest crash and market downturn of modern history. “The whole crash is going to be 80% to 90%,” he warned. The initial collapse will happen extremely fast and many won’t even notice what is going on until it’s too late. “If you wait to see if I’m right and take that risk, you are going to be hit very, very hard and history is very clear about that,” added Dent, noting that stocks are going to drop 40 to 50% in the first wave.
By looking at the current conditions, it seems that Dent is right, and we’re already witnessing the first selloff wave, with a series of stocks plunging more than 50% over the past week. The tech-heavy index has some of the most popular tech names, including Apple, Microsoft, Nvidia, Tesla, and Google — the five companies that led the rally and earned 51% of all market gains from April through December 2021.
As the sector loses steam and the bubble collapses, a near-record number of tech stocks have dropped by roughly 50% last week, a figure that was only surpassed by the March 2020 crash and the global financial crisis, according to analysts with Sundial Research. Four in every 10 companies on the Nasdaq Composite have seen their market values plunge by 50% or more from their 52-week highs, while a vast majority of index constituents are already mired in bear markets, said Jason Goepfert, chief research officer at Sundial. Many other experts seem to agree with Dent’s prediction that a historic downturn is ahead. Amongst them, Bank of America’s Savita Subramanian and Michael Hartnett, along with Stifel’s Barry Bannister — top strategists at their respective banks — are also pointing worrying similarities to the 2000 meltdown and alerting that a bear market is coming next.
All of the experts are calling for dismal returns for the markets in the years ahead, mostly because the current valuations are out of touch with reality and cannot be supported without more liquidity injections. On top of that, Warren Buffett’s favorite indicator jumped by 211%, a major signal of a market downturn. The Wilshire 5000 Total Market Index reached a new intraday high of $48.99 trillion last Tuesday. Meanwhile, the latest estimate for third-quarter GDP is $23.20 trillion, putting the Buffett indicator at 211%. When the market gauge soared during the dot-com bubble, it should have been a “very strong warning signal” of an imminent crash, he noted. Moreover, investors who buy stocks when the metric approaches 200% are “playing with fire,” Buffett cautioned.
In short, that means that a correction can occur in January, which can be a buying opportunity for some, and a total nightmare for others. With all that said, gloomy forecasts such as Dent’s don’t seem too far away from reality. In a matter of days, everything can change in the market. And a 90 percent stock market crash doesn’t seem too crazy given today’s absurd valuations. Those who want to wait and see may find themselves unpleasantly surprised in the weeks ahead. The latest plunge isn’t a ‘buy the dip’ opportunity as some may think, but the beginning of a bear market era that will lead us to the deepest financial downturn of our lifetime.