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A top fund manager has warned that the stock market could see near-zero returns for a decade.
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This is because inflation and interest rates are likely to remain high.
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In the short term, he said, the stock market could see losses comparable to the dot-com bust and the 2008 crash.
Investors rooting for this year's stock rally should be prepared that the good times are over and the S&P 500 risks dismal returns over the next 10 to 15 years.
That's according to top 2% fund manager Bill Smead, who remains one of Wall Street's biggest bears despite the market rising 8% in 2024. That's because stocks appear to be in the midst of a speculative bubble, he warns. That has been the case in the past, and investors could be entering a “dead ball” era of performance, the founder of Smead Capital Management said in a recent note to clients.
Smeed said that “dead ball” period will continue for at least the next 10 years and will only end once all enthusiasm for the market's most expensive stocks dies. He said this process could lead to losses on par with the dot-com bubble and the Great Financial Crisis, when stock prices fell by double digits.
“It's going to be more like the 2000-2003 bear market or the 2007-2009 bear market,” Smiad told Business Insider in an interview. “We're probably going to have two full-blown bear markets within 10 years, and then it's going to be basically impossible to make money on the S&P 500. The S&P 500 index is going to get kind of a bad name. You wouldn't want to buy that word. “
Smeed believes that losses could be exacerbated by persistently high inflation. The latest CPI report released Wednesday by the Bureau of Labor Statistics shows that the consumer price index has exceeded expectations for the past three months, with prices rising 3.8% in March from a year earlier.
As a result, the economic situation is precariously similar to the 1970s, just before inflation got out of control and stock prices slumped, Smeed said.
Stubborn inflation raises the risk that the Fed will keep long-term interest rates high, with some experts like JPMorgan President Jamie Dimon saying rates could eventually rise to 8%. I'm warning you that there is.
“It just smells like inflation,” Smeed said of the economy. “We are entering an era of inflation, which will cause a complete change in what we call the investment zeitgeist…When that zeitgeist is changing, the stock market itself performs better. You can’t do that because all the money is in it.” [there]. ”
While investors are keen to put money into AI stocks and mega-cap leaders like those featured in “The Magnificent Seven,” Smead says to stay away from overvalued areas of the market. I have warned you repeatedly. He previously predicted that the value of the most expensive stocks could fall by up to 70%.
“No one talks about the vast majority of growth stocks that have delivered buoyant prices, underperformed, and been slaughtered,” he said in a note last week.
That doesn't mean you don't have the opportunity to profit, even during a dead ball period in the market. Smeed's firm remains bullish on “disadvantaged” investments that typically benefit from inflation, such as oil and gas, real estate and gold.
“During the dead-ball era, we really found places to get hits and score runs,” he said, noting that he outperformed his performance in those sectors in the 70s. “We are in the same situation.”
Other bearish Wall Street forecasters are also warning of an impending stock correction given dizzyingly high valuations. Still, the Wall Street consensus is fairly optimistic, with nearly half of investors saying they are bullish on stocks over the next six months, according to AAII's latest Investor Sentiment Survey.
Read the original article on Business Insider
