There will always be doomsayers calling for a stock market crash. However, 2023 feels different due to a convergence of unsettling trends. So, will the S&P 500 collapse before the year’s end?
No one has a crystal ball that can accurately predict the future of the financial markets. However, there is at least one market veteran with a decidedly dour outlook for stocks. Let’s see what he has to say — and, more importantly, form our own conclusions about how to proceed.
Expert Predicts a Recession and Stock Market Crash
I won’t deny it. Former JPMorgan Chase (NYSE:JPM) and Merrill banker Jon Wolfenbarger knows a thing or two about stocks. He’s a 31-year financial market veteran who has undoubtedly witnessed the vicissitudes of the large-cap indices.
Wolfenbarger warned that a stock market crash is coming — or, more precisely, that the S&P 500 will decline by another 48% by the end of the current bearish market cycle. Even more specifically, Wolfenbarger sees an imminent recession occurring in the U.S. and expects the S&P 500 to drop to around 2,250.
Like most crash callers, Wolfenbarger has some stats on his side. For example, the Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) has been below 48 for eight consecutive months. This indicates that the manufacturing sector has been in a state of contraction.
Furthermore, Wolfenbarger observed that the U.S. Gross Domestic Income (GDI), which includes wages, corporate profits and tax revenue, has been negative year-over-year for three consecutive quarters. “Real GDI has never fallen three quarters in a row without the economy being in a recession,” Wolfenbarger stated.
To those bearish arguments, we could add the potential for a government shutdown this year and the Federal Reserve’s hint at a “higher for longer” interest rate policy.
Stock Investors: Let History Be Your Guide
All of this suggests that a stock market crash is possible but not that it’s inevitable in 2023. History shows that buying S&P 500 stocks, holding them for years and reinvesting the dividends has been a sound strategy.
It might be a different story if you’re a short-term stock trader. For long-term investors, though, relaxing and extending your time horizon isn’t a bad idea.
The S&P 500 has rebounded after previous government shutdowns and rate-hiking cycles. If you’re really worried, it’s fine to diversify your holdings and possibly take a few chips off the table. Overall, though, the time-tested policy of relaxing and staying in the trade should hold up in 2023 and beyond.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
