Mark Spitznagel, founder and Chief Investment Officer of Universa Investments, cautions that while the stock market is reaching unprecedented highs and traders are confident in a soft economic landing, a sudden downturn could be on the horizon. In a Thursday interview, he advised investors to watch out for "second-order effects," such as a market crash driven by an economic slowdown, even if the Federal Reserve cuts interest rates.
Spitznagel predicts that a market "collapse" could occur globally by the end of this year due to economic deceleration. "When the yield curve inverts and then reverses, you're entering the countdown to the Black Swan event," said Spitznagel. His firm is advised by Nassim Nicholas Taleb, the author of "The Black Swan." "Black Swans are always lurking, but now we are in their territory," he added.
The S&P 500 index (SPX, Financial) hit 42 all-time highs in 2024, attributed to strong corporate earnings, a cycle of Fed rate cuts, and expectations that the U.S. economy will avoid recession. However, Spitznagel believes that lower borrowing costs from the Fed should raise investor concerns about where stock prices will be next year.
"Gold will decline, and cryptocurrencies will drop alongside risk assets," Spitznagel noted, adding that bonds might be a safer haven. He also anticipates rising volatility in the coming months.
Despite Spitznagel's cautionary stance, his view is in the minority on Wall Street. Most major firms still expect U.S. stocks to continue reaching new highs, potentially climbing to 6000 points. On Tuesday, Goldman's Chief U.S. Equity Strategist projected that the S&P 500 index (SPX, Financial) would trade around 6000 points in a year, implying a 5% increase from its record closing level of 5719 points on Monday. The index has already risen about 20% this year. However, he warned of potential market turbulence in the coming weeks as the election between Vice President Harris and former President Trump enters its final stages. Historically, this period has seen increased volatility and falling stock prices.
