- Rising energy prices in the US will trigger a recession in the US economy and a decline in the stock market, according to an American economist. Gary Shilling.
- A decrease in liquidity in the stock market usually has a negative impact on the state of the crypto market.
Economist and former Merrill Lynch employee Gary Shilling given interview, in which he outlined a rather bleak forecast for markets and the economy. In his view, a recession in the US is almost inevitable this year.
He also predicts a major correction in the stock market, which could cause the S&P 500 to fall by as much as 30%. He believes the downturn could begin by the end of the year.
The only factors capable of preventing a downturn would be either a sharp increase in fiscal stimulus or continued robust growth in consumer demand in the US. However, he believes both are unlikely.
The coming downturn is indicated by the fact that the housing market remains largely frozen due to high interest ratesDespite a brief surge in existing home sales in the US last year amid falling mortgage rates, buyer activity has slowed.
Furthermore, capital expenditures, a measure of business investment in things like hiring and acquiring equipment, have fallen sharply in the private sector in recent years. Taking into account the rapid growth of AI capital expenditures, total capital expenditures by the end of last year grew by 3,9%, down from a peak of around 24% during the pandemic.
Consumer spending, which accounts for about two-thirds of economic growth, has become the backbone of the US economy. Real personal consumer spending growth remained stable at 2% year-over-year in March, but Shilling has no doubt that expenses will decrease next year.
Americans are already beginning to feel the effects of the inflation spike caused by the war against Iran. According to the Bureau of Labor Statistics, energy prices rose 12,5% year-over-year in March, the largest increase since 2022.
Against this backdrop, real income growth slowed to 0,4% year-on-year in March, reaching its lowest level in nearly three years. The annual personal savings rate fell to 3,6%, also the lowest since 2022.
In terms of income and people’s willingness to spend money, the situation is indeed very precarious, he noted. Shilling.
Asset valuations have risen to alarming levels in recent years, according to Schilling, and overvaluation of shares Three indicators show.
- The S&P 500’s inflation-adjusted price-to-earnings ratio, also known as the Shiller CAPE ratio, is at its highest level since before the dot-com crash.
- The price-to-sales ratio is at an all-time high.
- The S&P 500 price-to-book ratio is following the pattern of the previous indicator.
“Stocks are very expensive, and a significant correction is likely in the relatively near future. A 20 or 30% drop by the end of 2026 isn’t that big by historical standards. So, I’d say it’s quite likely,” Gary concluded. Shilling.
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