Economist and investment advisor A. Gary Shilling foresees a U.S. recession and likely an accompanying bear market, his latest Insight newsletter suggests.
"With the Fed shifting from credit restraint to ease starting last September, a recession could be already underway," he wrote.
Shilling maintained his cautious strategy while tweaking language from previous commentaries, recommending that investors "hold extra cash as a bear market in equities unfolds," the newsletter, released Wednesday, says.
Shilling again suggested investors go long the U.S. dollar and Treasury bonds, "the other safe haven, which also should rise in price as the Fed eases credit and the recession unfolds."
He continued to recommend investors "avoid vastly-overpriced stocks," like the Magnificent Seven, artificial intelligence stocks and cryptocurrency securities.
"We’re not quite in bear market territory yet and the S&P 500 is only down 8.7% from its February 19 peak," Shilling wrote. "Initial declines with some gains usually do precede bear markets — bear market rallies — as was seen in the initial 9.2% decline in early 2000 from the peak before the dot com crash and the 4.1% drawdown, then slight bounce back in late November 2021, before the bear market followed in 2022," Shilling wrote.
Shilling also noted that various data points, including faltering consumer sentiment, have raised concerns about the economy, with the outlook "shifting to the U.S. recession we’ve been expecting."
In late March, 43% of fund managers expected a recession in the coming year, Shilling wrote. Worries over new tariffs have skyrocketed while consumer confidence plunged, he added.
Shilling said his cautious investment strategy has been vindicated recently, with earlier enthusiasm over Trump’s election having given way "to uncertainty and fears generated by the Administration’s repeated rounds of tariff increases, widespread firings of federal government employees and the resulting disruptions of government services. These negatives for stock prices have swamped business hopes for further government deregulation."
Major stock indexes have dropped over 10% from earlier post-election peaks and investors are retreating to Treasurys, he noted.
"In this investment climate, we are comfortable with our 'risk off' strategy."
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