US Stock Market Surged for 2 Years "Not Anymore"... Wall Street Giants Flooded with Crash Warnings

There is growing pessimism that the US stock market, which has soared over the past two years, may face downward pressure this year due to inflation concerns. A hedge fund titan who successfully predicted that the S&P 500 index would yield over 20% last year emphasized that the best investment product this year is ‘cash.’

On the 7th (local time) at the New York Stock Exchange, the S&P 500 index, centered on large-cap stocks, closed down 1.11% at 5909.03, while the tech-heavy Nasdaq index plunged 1.89% to 19,489.68. The blue-chip-focused Dow Jones Industrial Average (Dow) ended the day down 0.42% at 42,528.36. Following Nvidia’s 6.2% plunge after its record high driven by strong earnings from its partner Foxconn the previous day, Magnificent 7-related stocks such as Tesla (-4.1%), Meta, the parent company of Instagram (-1.95%), and Apple (-1.14%) all fell sharply.

The simultaneous decline of the three major US stock markets was influenced by the release of better-than-expected job and service sector data that day. According to the US Department of Labor, the number of job openings in the US in November last year was 8.1 million, the highest in six months since May (8.23 million). The Institute for Supply Management (ISM) reported that the December service sector Purchasing Managers’ Index (PMI) rose 2 points from the previous month to 54.1, exceeding market expectations.

The unexpectedly strong US economic growth has heightened concerns about reigniting inflation, leading to widespread speculation that the Federal Reserve (Fed) will keep interest rates elevated for a longer period. As a result, Treasury yields surged. The yield on the 10-year US Treasury note is currently around 4.7%, the highest level in over eight months since late April last year.

Experts view the inflation reignition concerns as the biggest factor causing the stock market decline at a time when profit-taking pressure has increased due to the US stock market’s high growth. The S&P 500 index posted a 24.2% return in 2023, following a 23.3% return last year. This is the highest performance since the IT bull market of 1997-1998 (66%).

There are also concerns that policies from the second Trump administration, such as illegal immigrant deportations, tariffs, and tax cut extensions, could lead to excessive Treasury issuance and ignite inflation. Dan Niles, founder of Niles Investment Management and known as a hedge fund titan on Wall Street, forecasted, “If concerns about a recurrence of 1970s-style inflation arise again in 2024 as they did in 2022, investors could suffer losses in both stocks and bonds.” He predicted there is a 50% chance that the Fed will either hold rates steady or raise them until the end of 2025 due to rising prices.

Niles also pointed out that potential corporate earnings slowdowns in Q1 2025, a strong dollar, and a slowdown in artificial intelligence (AI) development speed could act as negative factors for the US stock market. He emphasized, “The top investment product in 2025 will be cash.” MarketWatch introduced Niles as the person who predicted last year that the S&P 500 would rise more than 20% thanks to a soft landing of the US economy.

According to US economic media CNBC, Howard Marks, chairman of Oaktree Capital who predicted the dot-com bubble, recently stated in a client memo that US stock valuations are too high, which could lead to prolonged poor returns or short-term corrections.