Tuesday, October 11, 2022

"Brace For Stock Market Crash Because Things Are About To Get Really Crazy"

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"Brace For Stock Market Crash Because
 Things Are About To Get Really Crazy"
by Epic Economist

"This is not a drill. An October stock market crash can break out at any moment, experts alert. 2022 has already been a very painful year for investors, with all three major indexes falling into a bear market, stock market volatility remaining at its bumpiest level on record, and over $46 trillion in financial wealth being wiped out from global markets since January. But things could get a whole lot worse as we enter the most dangerous weeks of the year – and previous October crashes offer an eye-opening warning.

Last week, Morgan Stanley offered a detailed breakdown of the impending economic dangers that are likely to result in further market losses in the weeks ahead. “This is one of the toughest macro forecasting environments most companies have ever encountered. It seems companies are reaching the point where they can’t take it anymore,” the bank noted. Morgan Stanley strategist Michael Wilson highlights that the “key question in the minds of many investors has once again shifted to when the Federal Reserve is turning — not if,” adding that the economy has entered a “danger zone” in which the Fed policies have become restrictive and the growth outlook is compromised.

Wilson says “it’s only a matter of time” before a “quick and furious” market event takes place. Even if September inflation levels do improve, Fed officials have repeatedly said they plan to continue with their policy of elevated rate hikes and have publicly said they’re worried that markets refuse to listen to their messaging. The central bank’s goal of 2% inflation means that an over 6% decline is still needed, which consequently implies that stocks still have a lot of room to fall.

Morgan Stanley predicts that the S&P will end the year in a bear market low of between 3,000 and 3,400 points — suggesting that the index, which is already down 21.5% this year, with face another 20% crash. But still, these estimates seem a little too conservative when considering how unhinged stocks really are right now.

Many market veterans are even more downbeat about future performance. For instance, John Hussman, who correctly called the dot-com bubble, is warning that stocks will end the current bear market 50 to 70% lower from current levels, “as investor positioning remains inconsistent with fundamentals and valuations linger at historically extreme levels,” he noted. "The way that bubbles unfold into preposterous losses – 89%, 82%, 50%, 55%, and I expect this time between 50-70% – is through multiple periods of decline and even free-fall, punctuated by fast, furious 'clearing rallies' that offer hope all the way down," Hussman said. "By the time investors experience the second or third free-fall, the psychology of investors is not 'this is the bottom' – but rather, 'there is no bottom.'”

That thinking, however, is set to cause a lot of shock in the coming weeks. If history is a guide, the next few weeks could throw the market into disarray.Research releas ed by the analyst Clive Hale, head of Clive Hale Consulting, points out that the cumulative impact of escalating geopolitical conflicts, China’s economic slowdown, energy supply shortages, rising interest rates, lower consumer spending, a decline in property prices, and many other problems are setting the stage for the worst October shock seen since 1987 and 1929.

In other words, there’s nothing that supports the idea that better days are coming for stocks. The carnage is starting to spread everywhere and the market continues to break. It’s safe to say that this isn’t going to end well, and we have already gotten to a point where this should be obvious to everyone."

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