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U.S Stock Market : Is Meltdown Coming?

(Tue, 4 August 2020). The stock market could drop 80% due to prolonged economic damages. Gold could hit $2,300 an ounce this year and $10,000 by the end of the decade.

Both the S&P 500 and gold are hitting new highs. The stock market could drop by 80% as the economy struggles to emerge from the pandemic. Gold could hit $2,300 this year. We shouldn’t expect a vaccine to be the cure to all the economy’s problems. The U.S. stock market keeps rising despite rising virus cases and a sloppy recovery. The S&P 500 has rallied by more than 45% since hitting bottom on March 23.

There’s strong reason to believe that the rally is not sustainable and that equities could collapse soon.

 

We’re In the Midst of a Massive Bust

David Hunter, the chief macro strategist at Contrarian Macro Advisors, believes that the economy is in the midst of a massive “bust” consisting of two phases. We are now in the first phase, which consists of the initial bear market and short-lived recovery. The second phase of the bust, which Hunter expects to take place in late 2020 or early 2021, will see a much steeper downturn than the first phase. Stimulus measures have failed to support many sectors of the economy that need help. Many businesses have gone bankrupt because of the lockdowns. Hunter predicts we’ll see much more insolvency in the second phase.

When investor exuberance ultimately dries up, Hunter sees the stock market losing up to 80% of its value. He’s much more optimistic about the future of gold, which recently hit a record high of $2,000 an ounce. He sees the yellow metal going to $2,300 this year. Due to unprecedented stimulus and inflationary pressures, he believes gold can reach $10,000 or more by the end of the decade.

 

A Vaccine Won’t Prevent Stocks From Crashing

Encouraging results from vaccine trials have driven stocks higher. Dr. Anthony Fauci said Friday he is confident a vaccine would be ready early next year. There seems to be a belief that once a vaccine is available, everything will go back to normal. Solomon Tadesse, the North America head of quantitative equities strategies at Societe Generale, thinks investors may overestimate how quickly a successful vaccine can restore lost economic activity and corporate revenues. When it comes to the vaccine, Tadesse has four specific concerns that crush hopes of a swift recovery.

First, he points out that despite the nearly 200 vaccines in development, there is no guarantee that any of them will be effective on a large scale. Second, there is no guarantee that the vaccine will be widely available. Tadesse cited a survey by Lazard, which showed that 73% of healthcare executives don’t expect an effective vaccine until the second half of 2021.Third, there will be people who refuse to be vaccinated, which can slow the process of ensuring herd immunity.Fourth, it will take some time for people to unlearn their new pandemic habits and revert to their normal behavior even after a vaccine is available. A return to pre-pandemic practices would help boost business income and overall economic activity. The stock market may be looking at an economic recovery that will end up being less impressive than expected. The long-term negative economic consequences of pandemics could last several decades. When investors realize the economic damage will last several years, a market meltdown is likely.

 

 

 

 

 

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