Stock market crash: Expert warns of bubble, says reversal is coming

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A top Wall Street strategist says the stock-market rally is due for a reversal as a bubble forms — and warns investors not to equate surging prices with a healthy underlying economy

The rally so far this year has been driven by multiple expansion, he said.Investors continue to celebrate signs of a soft landing for the US economy.

Plus, falling inflation means weaker pricing power, and therefore weaker revenue growth, Kantrowitz said."Multiples are going up right now, not because earnings expectations are really going up, which was the case in the 1990s and certainly was part of the case in late 2020, early 2021. If you look at long-term earnings growth, we're sitting near record-low levels.

Kantrowitz's base case is for a recession to hit the US economy in the second half of this year, and he encouraged investors to take notice of leading indicators like the ISM PMI Manufacturing Index, which has been at contraction levels for months, reflecting softer demand. Like Kantrowitz, economist David Rosenberg urged investors to keep in mind that hawkish monetary policy is still working its way into the economy.

 

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