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The S&P 500 is at risk of falling 44% to around four-year lows, Paul Dietrich said.
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The top strategist explained that selling stocks well before the crash can lead to outsized returns.
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Dietrich predicted a mild US recession this year based on numerous warning signs and threats.
The stock market could be heading for a 44% crash – and an early exit could pay off, Paul Dietrich said.
The chief investment strategist at B. Riley Wealth Management moved his clients from stocks to bonds in 2000 and switched from stocks to cash, bonds and gold in 2007, he recalled in his April market commentary.
Dietrich’s clients missed out on a massive rise in stock prices over the next year or so. But they also escaped severe blows from the subsequent collapses of the dot-com and real estate bubbles.
During the 2000-2002 recession, when the S&P fell 49% and the Nasdaq fell 78%, they had a net profit before fees of 7%. During the 2008-2009 recession, they lost about 6% before fees, but that performance exceeded the S&P’s 57% decline over the same period.
“Despite the fun and excitement of participating in the current Mardi Gras-like stock market bubble, which is completely independent of a stock’s fundamentals, let’s assume an investor could capture most of a 49%, or 57%, decline in the S&P 500 Index % miss and then re-enter the index “When the leading indicators of the economy and the long-term moving averages indicate that the recession is over,” Dietrich said.
He stressed that the “severely overvalued” S&P would need to fall 8% to return to its 200-day moving average, and that the index has declined an average of 36% in past recessions.
As a result, Dietrich said the benchmark could suffer a 44% decline to around 2,800 points – a level it last reached at the height of the pandemic in 2020.
Dietrich also explained why he still expects a slight recession this year. He pointed to high stock valuations, flashing red charts, a historic rise in the so-called Buffett indicator, the risk that interest rates will remain high for longer and record highs in gold prices as signs that the market and economy are headed for trouble.
The Wall Street veteran added that the recession has been delayed by huge government spending, consumers piling up debt for purchases and a historically tight labor market that is showing signs of cracks.
Dietrich’s latest warnings give rise to skepticism, as the stock market and economy have resisted the gloomy predictions of him and other prophets of doom for years.
Additionally, famous investors like Warren Buffett have warned against timing the market because it is virtually impossible and continuous investing or “dollar-cost averaging” in an index fund is a far better strategy.
But several of Wall Street’s biggest players, including JPMorgan CEO Jamie Dimon, Goldman Sachs CEO David Solomon and Citigroup CEO Jane Fraser, have all warned that markets are undermining the risks posed by threats such as inflation, Recession and geopolitical unrest are emerging, not priced in.
Read the original article on Business Insider