Wall Street Expert: U.S. Stocks Could Plunge 70% if Recession Hits

The U.S. stock market is experiencing an impressive boom, with the S&P 500 index now less than 1% away from its record high. However, this bright picture seems insufficient to dispel the dark clouds looming in the minds of Wall Street's most pessimistic forecasters.

Alarming Signs Emerge in the U.S. Economic Outlook. The U.S. economy is starting to show troubling signs. Reliable recession indicators, such as the Sahm Rule, have begun flashing warnings of potential difficulties ahead. Simultaneously, the job market is witnessing a significant slowdown in growth. Even as the Federal Reserve considers cutting interest rates, many experts remain skeptical about its ability to prevent an impending recession.

Let's listen to the warning bells from leading experts:

Mark Mobius: First Economic Warning Signs in Over 90 Years

Billionaire investor Mark Mobius highlighted a noteworthy phenomenon in an interview with CNBC: the M2 money supply is decreasing at the fastest rate in nearly a century. Since peaking in 2022, this indicator has been steadily declining, sounding an alarm for the economy.

Mobius emphasized, "The main concern is that if the M2 money supply has been declining since April 2022 and fails to keep pace with economic growth, there may be less capital available for discretionary spending—a key driver of the current economic expansion and the bull market on Wall Street."

In light of this situation, Mobius advises investors to exercise caution. He suggests holding 20% in cash to be ready to seize opportunities when stock prices may drop. He also recommends looking for companies with strong characteristics: little to no debt, moderate profit growth, and high return on equity.

Steve Hanke: Recession Could Occur by Early 2025

Economist Steve Hanke issued a stern warning about the possibility of a near-term recession. In an interview with asset consulting firm Wealthion, he predicted, "The U.S. will enter a recession by the end of this year or early next year, which is why we believe inflation figures will continue to decline."

Hanke pointed to several worrying signs at the micro level, including:

• Unemployment rising to 4.3%—the highest since the pandemic.
• A continued slowdown in retail sales.
• Stagnation in the housing market.
• Declining manufacturing activity.

He stressed, "If you look at the micro data, it aligns quite well with the macro monetary picture I've just laid out, where the economy is heading into a recession, and inflation continues to decline. That picture, when viewed at the micro level—whether at individual companies or sectors of the economy—shows that a slowdown seems imminent."

Jon Wolfenbarger: Recession Could Cause Stocks to Plunge 70%

Jon Wolfenbarger, founder of BullAndBearProfits.com, delivered a shocking forecast: the stock market could drop as much as 70% if a severe recession hits. He pointed to several concerning signs, including the inverted yield curve and the flashing Sahm Rule.

Wolfenbarger also noted the ongoing decline in average weekly working hours, currently around 34.2 hours. He warned that any further decline in this metric would signal an unprecedented downturn not seen since crisis years like 2008 and 2020.

Moreover, the steady drop in manufacturing jobs, based on the ISM Index, suggests that unemployment may still have room to rise. Coupled with stock market valuations at high levels, these factors led Wolfenbarger to predict that the S&P 500 could fall as much as 70% from its current levels.

Contrasting View from Goldman Sachs

However, not all experts are pessimistic about the U.S. economic outlook. Goldman Sachs, one of the world’s leading investment banks, believes that recession fears are "overblown." In a recent note, they emphasized that U.S. consumers remain strong and corporate profit growth continues to yield positive results.

Jan Hatzius, chief economist at Goldman Sachs, stated, "The concerns about U.S. consumers have been exaggerated. Our quantitative measure of sentiment around consumers in earnings calls has improved sequentially; revenue growth at consumer-facing companies has slowed but remains healthy, and real income growth appears to be solidly positive across all income groups."

Furthermore, Goldman Sachs also offered a highly optimistic forecast: trillions of dollars in sidelined cash could flood the stock market once the results of the November presidential election are announced. They predict this could push the S&P 500 up 7% to reach 6,000 points—an impressive growth scenario for the market.