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Nvidia is in a bubble, stocks will flounder and there will be a recession this year, Jesse Felder said.
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The market guru said the microchip frenzy would fade and stock market returns would fall.
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Prepare for slower growth, higher unemployment and stubborn inflation and interest rates, he said.
The Nvidia hype is a bubble that will burst, stocks will disappoint for the next decade or more and there will be a recession this year, Jesse Felder said.
The veteran analyst behind “The Felder Report” made his case in the latest “Thoughtful Money” podcast episode.
He warned that the microchip buying spree would not last, the market’s outsized returns would dry up and the economy could sink into stagflation.
Living in a fantasy
Stock prices have risen to record highs this year as investors bet that AI, interest rate cuts and steady economic growth will boost corporate profits.
Felder, who managed money for about two decades before starting his market research firm, warned that stocks had become so expensive that their future returns were bound to be disappointing.
“The prices for financial assets will develop significantly worse than in the last 10, 15 years,” he said.
The hope for further outperformance is “an extrapolation of the untenable – that is the definition of a bubble,” he said.
“That’s exactly what’s going on with Nvidia and Micron stock prices,” he continued, warning that buying high-flying stocks could be “extraordinarily painful” as they could suffer massive crashes.
The semiconductor industry is cyclical, meaning it fluctuates from boom to bust over time, he said. Overexcited AI companies, in their rush to secure them, ordered double or triple the amount of chips they needed from suppliers like Nvidia, meaning the market was flooded, he continued.
“Everything ends up in the toilet, that’s the history of these companies,” said Felder.
Chipmakers like Nvidia could even go from explosive sales and profit growth to declines, which “could mean real pain for a lot of these stock prices that have priced in a fantastic future,” Felder said.
The market guru also called the recent surge in insiders selling their companies’ shares a warning sign, pointing to Amazon’s Jeff Bezos, Meta’s Mark Zuckerberg and JPMorgan’s Jamie Dimon as examples.
“This is a very, very dangerous stock environment,” he said.
Economic problems
Many on Wall Street expect the U.S. economy to escape recession, with inflation and interest rates falling this year and unemployment remaining near historic lows.
However, Felder “expects a stagflationary scenario to be much more likely than a soft landing or no landing scenario.”
The ex-trader and former hedge fund boss said the economy is unlikely to be “destroyed” like it was during the pandemic or the Great Recession.
There will likely be a “slow burn” rather than a “really painful slump” in growth, he said. Unemployment could rise and the economy could only contract in real terms as inflation more than offsets nominal growth, he noted.
Felder pointed to aging populations in many Western countries and deglobalization trends like reshoring as two structural forces that will likely prevent inflation from falling too far.
He also cited enormous government spending, the rising costs of servicing the national debt and the Fed’s possible relaxation of its 2% inflation target as further inflation drivers.
“There is overwhelming evidence that inflation will remain high relative to recent history,” Felder said.
If he’s right, that likely means interest rates will stay higher for longer, the economy will grow more slowly and possibly even shrink, and assets like stocks will perform worse than many experts predict.
Read the original article on Business Insider