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The S&P 500 is at risk of falling 44% to a four-year low, according to Paul Dietrich.
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The top strategist explained that selling stocks well before they crash can yield outsized returns.
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Dietrich predicted a mild recession in the US this year based on several warning signs and threats.
The stock market could be headed for a 44% crash – and getting out early could pay off, Paul Dietrich said.
B. Riley Wealth Management's chief investment strategist moved his clients from stocks to bonds in 2000, and from stocks to cash, bonds and gold in 2007, he recalled in his April report. market commentary.
Dietrich's clients missed out on a huge increase in stock prices over the next year. But they also escaped the dizzying blows of the subsequent collapse of the dot-com bubble and the housing bubble.
They ended up making 7% before fees during the 2000-2002 recession, when the S&P plummeted 49% and the Nasdaq plunged 78%. They lost about 6% gross in fees during the 2008-2009 recession, but that performance exceeded the S&P's 57% decline over the same period.
“Despite the fun and excitement of participating in today's Mardi Gras-like stock market bubble Suppose an investor could miss most of a 49% or 57% decline in the S&P 500 index and then reenter the stock market when leading economic indicators and long-term moving averages indicate the recession is over. Dietrich said.
He emphasized that the “wildly overvalued” S&P would need to fall 8% to return to its 200-day moving average, and that the index has retreated an average of 36% in previous recessions.
So Dietrich said the benchmark could suffer a 44% drop to around 2,800 points – a level it last reached at the height of the pandemic in 2020.
Dietrich also explained why he still expects a mild recession this year. He pointed to heady stock valuations and charts flashing reda historic leap in the so-called Buffett indicatorthe risk that interest rates will remain higher for longer, and the gold price reaching record heights as signs that the market and economy are headed for trouble.
The Wall Street veteran added that the recession has been postponed enormous quantities of government spending, consumers build up debt to make purchases, and that is a historically tight labor market shows signs of cracking.
Dietrich's final warnings warrant skepticism as the stock market and economy have defied his and other doomsayers. gloomy predictions for years.
Moreover, famous investors like Warren Buffett have done just that warned against trying to time the market, because that is virtually impossible, and invest steadily or “the dollar cost average“Putting in an index fund is a much better strategy.
Yet there are some of the biggest players on Wall Street, including the CEO of JPMorgan Jamie DimonDavid Solomon, CEO of Goldman Sachs, and Jane Fraser, CEO of Citigroup, did just that all warned that markets do not price in the risks of threats such as inflation, recession and geopolitical conflicts.
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