Warnings have increased in recent weeks: more and more analysts see a major stock market crash coming our way. The combination of economic stagnation and inflation skyrocketing – in short: stagflation – is causing unrest. JPMorgan CEO Jamie Dimon is already warning of a recession, and the former New York Fed President even considers it “inevitable”. Deutsche Bank is now the first major bank to prepare for a US recession.
A sustained economic downturn is bound to be reflected in stock prices sooner or later – and there’s still a lot of room… down. This is shown by the valuations that are reflected in the price-earnings ratio (P/E). Despite the downward trend, they are still very high. At around 21, the current average P/E of the American S&P 500 index is still above the long-term median value of 15.97.
Painful corrections are likely to be imminent after the past five fat years. Despite the corona pandemic, the indices in the USA rose sharply. Last but not least, they benefited from the ultra-loose monetary policy of the central banks, which is now being ended in view of the galloping price increases. The existing imbalances in the global money supply, together with geopolitical risks and endangered international supply chains due to the Chinese no-Covid lockdown, are also contributing to the dampening of sentiment.
As is so often the case, there is disagreement about the timing of a possible crash. Some are already seeing it beginning, others are predicting a misleading market recovery that could take up to two years. According to CNN, some analysts even expect an enormous rally, which would mark the final end of the bull market on the US stock exchanges, which has basically been going on since 2009. This would then follow the same pattern as the two stock market crashes of 1929 and 2000. Before the dot-com bubble burst in March 2000, the NASDAQ 100 rose another 180 percent in just a year and a half.
Luke Lango, an investment analyst at InvestorPlace, expects another two-year rise before collapsing like a house of cards.