From 65% S&P 500 Decline to Recession

• Despite a stock market that’s less than 1% away from record highs, bearish forecasts are out in full force.
• Top economists and portfolio managers are warnings of everything from an imminent recession to the potential for a 65% stock-market crash.
• Outlined below are assorted high-profile bear forecasts from across Wall Street.

Even with the stock market less than 1% away from a record high, top forecasters who have consistently leaned bearish can’t shake the idea that a painful decline is imminent. 

Some warn of an imminent recession following a weaker-than-expected April jobs report that coincided with a jump in weekly jobless claims, while others suggest a stock market crash similar to 1929 is about to happen.

While these forecasts have fallen flat on their face so far, they’re still worth monitoring as a way for investors to poke potential holes in the consistently bullish narrative that the economy, corporate profits, and stock market are doing just fine.

Here’s a roundup of the most recent bearish forecasts coming from Wall Street.

Gary Shilling: Recession by year-end means 30% stock market plunge

Wall Street veteran Gary Shilling told Business Insider this week that he expects a recession to materialize in the US economy by the end of the year as the labor market shows signs of weakening. And a weakening in the labor market will crush investor confidence and send the stock market falling by as much as 30%.

“You look at all the kind of speculation that we’ve had out there, it’s indicative of a lot of overconfidence, and that usually gets corrected and corrected violently,” Shilling told BI’s Jennifer Sor. “I think that the safe bet is for a recession starting later this year if we’re not already in it.”

Shilling is known for correctly identifying the US housing bubble in the mid-2000’s, though most of his consistently bearish views over the past decade have yet to pan out. 

John Hussman: A 65% stock-market crash wouldn’t be surprising

John Hussman, president of the Hussman Investment Trust, issued a bearish warning on stocks this past week, arguing that the S&P 500 is trading at similar extremes seen in the run-up to the 1929 Great Depression as the fear-of-missing-out takes over investors.

“Statistically, the current set of market conditions looks more ‘like’ a major bull market peak than any other point in the past century, with the possible exception of the 1929 peak,” Hussman said, adding that the combination of “extreme valuations, unfavorable market internals, and dozens of other factors” give him comfort in having a bearish outlook on the stock market.

Hussman said he wouldn’t be surprised if the S&P 500 crashed 65%, which would erase a decade of stock market gains and put the index at about 1,800, or where it traded at back in February 2014. 

Hussman is famous for successfully warnings about the 2000 dot-com bubble and the 2008 housing market crash, though his consistently bearish predictions since then have yet to fully materialize.

BCA Research: A recession in early 2025 will cause 30% stock market decline

BCA strategist Roukaya Ibrahim warned that a 30% correction in the stock market could be sparked by a recession early next year.

Ibrahim told Bloomberg TV that the combination of elevated stock valuations and decelerating growth would send the S&P 500 back down to 3,600, which is around where the index bottomed in October 2022.

Ibrahim pointed to the April employment report, which saw 175,000 jobs added to the economy, revealed lower job openings, hires, and quit rates, all of which signal a shifting narrative toward economic downside, not upside.

“Eventually, the unemployment rate is going to take higher and that’s going to lead to concerns about a recession,” Ibrahim said.

David Rosenberg: Signs are growing of a potential hard-landing in the economy

The US might be “sleepwalking” into a recession as the labor market shows signs of weakening, according to top economist David Rosenberg.

“We’re constantly asked when we’re planning to throw in the towel on our recession call, but perhaps it’s time folks started asking when the rest of the street is going to pick their towels back up,” Rosenberg said in a note this week. “We’ve seen a downshift in the data flow that are starting to indicate that the downturn in the economy may not be as far away as many believe.”

Rosenberg said the Sahm Rule is on the verge of flashing a recessionary warning after the unemployment rate ticked higher to 3.9% in April, and that manufacturing activity contracted for the 17th month out of the last 18 months.

“Don’t get complacent. The labor market is cracking, a slowdown in services activity is dragging on real-time growth, and forward looking financial signals still point to a coming slowdown,” Rosenberg said.

Rosenberg famously predicted the 2008 recession, but his consistently bearish economic outlooks since then have largely fallen flat.

The counterpoint: A bullish take to balance out the doomsayers

One investment strategist who has been consistently bullish, and therefore right, over the past few years is market veteran Ed Yardeni. 

Yardeni said in a note on Friday that the economic doomsayers are likely once again too early in their recession predictions following the weaker-than-expected April jobs report and weekly initial jobless claims data.

“The most widely anticipated recession of all times is turning into the longest widely anticipated recession of all times,” market veteran Ed Yardeni said. “One day, the diehard hard-landers will be right.”

But that day probably won’t come anytime soon, according to Yardeni, as corporate profit estimates continue to hit record highs.

“Forward earnings rose to a record high during April, consistent with a solid labor market. So we don’t buy the claim that the latest jobless claims is just the beginning of a significant downturn in the labor market and the economy,” Yardeni said.