Expert Shares 7 Signals That A 60% Crash Is Coming


  • Jon Wolfenbarger says he is “very convinced” that a recession is coming in the near future.
  • He also says that several indicators show that stocks are expected to take a massive drop.
  • He shared with Insider the metrics that will tell investors when to exit.

Jon Wolfenbarger is not beating around the bush.

A stock market crash is approaching, he told Insider on Friday morning.

“I think the next

bear market
will be worse than 2008, which will make it the worst since the Great Depression, “said former Allianz Global Investors stock analyst.” I’m not necessarily saying it starts yesterday, tomorrow or now, but I think that it could start now. “

He added: “The S&P 500 fell 58% in 2008-2009. I think it could be worse than that. Somewhere over 60%.”

But such gigantic claims require convincing evidence. Wolfenbarger, who now runs, said there are seven indicators that make him so sure.

The current average is perhaps the most obvious Evaluation in the market – historically high by just about any measure.

Schiller’s price / earnings ratio is close to all-time highs. Or there’s the Warren Buffett indicator, which is the ratio of total market capitalization to GDP. It is currently 30% higher than it was during the tech bubble around 1999 and 2000.

wilderness buffet indicator

In search of the alpha

Then is investor sentiment, which has been mostly bullish since late March 2020. Wolfenbarger pointed out that the over-rise is a contrarian indicator, meaning it signals a slowdown ahead.

He cited the fact that the put / call ratio is near lows that have not been seen for nearly 15 years, meaning that investors have recently bought bullish calls versus bearish puts at historically high levels.

Then there are the margin debt levels, which have grown by 70% year over year. The last two times this happened were before the 2000 and 2008 crashes, he said.

Third, what he thinks is a weak economic perspective. “It is remarkable that industrial production and employment have practically stagnated over the past 20 years, really since the tech bubble,” he said.

industrial production index

In search of the alpha

Fourth, the United States debt-to-GDP ratio hits record high. Wolfenbarger said that high debt has been the “hallmark” of all financial crises of the past.

And then there’s the fact that he thinks the Federal Reserve has little work with in terms of policy tools, with interest rates close to zero and their balance sheets at record levels. In addition, inflation could continue to rise, which could force the central bank to tighten its policy more than expected.

The last two indicators listed by Wolfenbarger are those that tell him that the bear market may already be in progress.

First the percentage of shares on the New York Stock Exchange above their 200-day moving average went from around 80% to around 58%. Second, the the percentage of stocks on the Nasdaq above their 200-day moving average fell from 80-90% to 35%, he said.

“The market is down about five to six percent from recent all-time highs, which obviously isn’t a big deal. But if you look at the internals, a lot of damage has been done,” he said. .

Wolfenbarger said it is possible that the market peak will occur before the end of the year. He also said the reduction in asset purchases by the Fed and the reversal of bullish investor sentiment would trigger the crash. He also warned that it could be 10 to 15 years after a crash before the market returns to its previous highs.

4 signals that a bear market may be underway

Wolfenbarger has shared three indicators that he believes will tell him that a bear market has started.

1.) The price of the S&P 500 falls below its 250-day moving average.

2.) The price stays lower for an extended period and the 250-day moving average starts to drop.

3.) The S&P 500 20-day moving average drops below the 250-day moving average.

4.) The 60-day moving average of the S&P 500 drops below the 250-day moving average.

“If you have the price, the 20 days and the 60 days all below the 250-day moving average, that’s pretty much the definition of a bear market,” he said.

Wolfenbarger’s views in context

It’s hard to find a mainstream institution on Wall Street with an official opinion that stocks could experience a 60% crash in the next few months.

Yet investors and strategists have indeed turned more bearish in recent weeks. Several prominent strategists have warned that a correction is planned for equities, and their views began to emerge in early September.

Stocks have shown strength again this week, with the S&P 500 rising 2% since Monday. Strong corporate earnings and a strong GDP forecast for 2022 could also continue to push stocks up after their first 5% decline since October 2020.

S&P 500 chart

Have stocks peaked?

Market insider

But nothing is certain. There is an element of uncertainty as to how stocks will react to the Fed’s cut, and it remains to be seen how high inflation will be and for how long it will stay at high levels, and how Fed will react if inflation is not so “transient”. “as expected.

All of the above conditions stated by Wolfenbarger also show just how vulnerable stocks are – by historical standards – to a larger decline if a sufficiently strong negative catalyst arises. He will therefore keep an eye on these moving averages in the months to come.

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