The stock market has the perfect setup for a steep correction, Michael Gayed warned.
The portfolio manager pointed to three warning signs flashing in the market.
“I still think we’re all in a lot of trouble,” Gayed wrote. “All bubbles end.”
The market is looking like it’s in the “perfect setup” for investor panic and a coming stock crash, according to one of Wall Street’s most bearish fund managers.
Michael Gayed, a portfolio manager at Tidal Financial and the author of The Lead-Lag Report, warned that stocks could be at risk of a major correction, thanks to a handful of warning signs that are flashing in the market.
In an op-ed for InvestorPlace on Thursday, Gayed pointed to the rising price of gold, utility stocks, and long-term Treasury bonds — three assets investors typically flock to for safety when the market starts to sour.
“It’s uncommon for these three traditionally defensive asset classes to move in such harmony, and historically, this kind of movement has been a precursor to a broader market shift,” Gayed said. “The defensive asset classes’ unison movement is what matters here, and the fact that it’s happening during a bubble of speculative trading screams that something could be about to break. Be warned.”
Gayed has warned of a massive bubble forming in stocks for months — in line with other bears on Wall Street, who say that the hype for artificial intelligence is overblown and bound to end badly. Stocks now look like they did prior to the dot-com and 2008 market crashes, top economist David Rosenberg warned in a note earlier this year, pointing to the dominance of mega-cap tech in the S&P 500.
Gayed warned investors to brace for a potential stock market crash, though he didn’t have an official price target for the year.
“How the hell is this some bull market when it’s literally the entire world cheering the widening of the wealth gap that’s happening between mega-cap technology stocks and nearly every single other public company in existence,” Gayed said in a February op-ed. “I still think we’re all in a lot of trouble, and time will prove my original analysis (largely) right. All bubbles end.”
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Risk to the downside seems to be lost on investors though, who are still feeling pretty optimistic about the market as they anticipate a soft landing and Fed rate cuts to come later this year.
Over 50% of investors said they felt bullish on stocks over the next six months, according to the AAII’s latest Investor Sentiment Survey. Meanwhile, over 81% of individual investors said they believed the Dow would end the year higher, suggesting that investors are the most upbeat about the market since 2007, according to a survey maintained by the Yale School of Management.
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