When it was finally announced during the wee morning hours of November 8, 2016, that Donald Trump would become Mr. President Donald Trump, it would be an understatement to say that the majority of the world was shocked.
Immediately, speculation turned to the markets. Surely this outcome would send shockwaves of instability through the country and tank the market, experts postulated. But then something happened – a surge.
“Like most people, I was first surprised by the outcome of the election,” says Jim O’Sullivan, recognized financial forecaster, “and I was, second, surprised by the market reaction to that surprise.”
As you know by now, there was a massive surge in stock prices, followed by some leveling off, and then more rampant growth (which we’re still experiencing). Since Trump’s victory, the Dow Jones has experienced double-digit gains and eclipsed the 20,000 mark for the first time ever. The S&P 500 has also added roughly $2 trillion in value.
While optimism may be high in the business world, the rumblings of a looming market crash are getting louder and louder. From online gurus like Timothy Sykes to billionaires like Warren Buffett, everyone is being asked for their input on what will happen. And while nobody can know for sure, it’s interesting to see what they have to say.
From Boom to Bust?
Noted economists like Jim Rogers – founder of the Quantum Fund – and Mark Faber have been making headlines lately warning people that a big crash is imminent. Now, prophetic investor Andrew Smithers has joined the fold. He believes that U.S. stocks are about 80 percent overvalued right now, which is only the third time in history that stock prices have been so inflated. The other two times? The years were 1929 and 1999. That should tell you all you need to know.
It’s hard to deny that things are great right now. By every measure conceivable, the stock market is thriving and people are making money. But a balloon can only hold so much air before it pops.
“What does that mean?” analyst Larry Elliot asks, referring to the current state of the market. “It means the stock market is going to crash because sooner or later optimism breeds recklessness and boom will turn to bust. All that’s in question is how big the bubble will get before it bursts and when that moment will come.”
The good news – at least according to Elliot’s projections – is that the crash is still a ways off. All of the Trump momentum, fueled by likely corporate tax cuts and pro-business actions, will only fatten the market more. But once things come crashing, experts believe they’ll tumble hard and fast. Many believe this crash will be directly tied to Trump himself.
“Perhaps the most glaring risk that markets have discounted is Trump’s own unpredictability,” expert Jim Tankersley says. “He is, in some senses, a walking embodiment of tail risk, and not just in economic policy areas (most notably on Wall Street, where liberals are already beginning to warn a new round of deregulation could seed another financial crisis). He has shown, in his first month, an impulsivity and unconventionality unseen in the modern presidency.”
Be Greedy When Others are Fearful
The good news is that this country has been through crashes before – and there’s still time to prevent one from happening. If the market does crash, savvy investors will see it as a time to pounce.
As Buffett commonly says, “Be greedy when others are fearful and fearful when others are greedy.” By that line of thinking, now would be the time to be fearful. Next year could be the time to be greedy.