“I have consistently warned that we are in a bubble of unprecedented proportions, one that dwarfs the bubbles of the 2000s or 1990s.”
Economist Harry Dent has reported that September and October could mark the beginning of a significant market downturn. Historically, these autumn months have seen negative trends, and Dent predicts a potential long-term decline of up to 90% in US stocks.
Specifically, Dent highlighted in early September that the Russell 2000 small-cap index was exhibiting the largest divergences, which statisticians view as strong indicators of an imminent peak. Notably, the Russell 2000 has not achieved new highs since November 2021, unlike the Nasdaq, which peaked on July 10, and the S&P 500, which peaked on July 16. The following chart illustrates the Russell 2000’s significant divergences compared to the main indices on the New York Stock Exchange.
“The Russell 2000 peaked on July 16, alongside the S&P 500, reaching 2,300 points, which did not surpass the high of November 8, 2021, at 2,459 points. It is now trending downward again. As highlighted in the September newsletter, the Russell 2000 recently paused its rally at 2,234 points, failing to achieve a new high or even surpass the previous high of 2,300 points from July 16. This marks two unsuccessful attempts to reach the all-time high of November 8, suggesting a broader failure.
Dent notes, “It has already fallen below the prior minor peak of 2,112 points on Monday, September 9. The next support level is at 1,932 points, an 8.5% decrease. A significant breakdown would occur convincingly below 1,634 points, representing a 33% decline from its peak.”
“I have consistently advised: “Dispose of the stocks.” This is the soundest counsel I can offer. Sell immediately or to anyone when the chance presents itself.
We might be observing the beginning of a significant downturn this and the following month, as historically, September and October are challenging times.
And as for my ultimate predictions: an 87% plunge in the S&P 500 and a 94% nosedive in the Nasdaq, the two principal indices that have attracted the bulk of investors at what appears to be a classic peak.”
According to the economist, we are currently witnessing a second artificial bubble in stocks and real estate, fueled by extensive monetary and fiscal policy relief measures on a global scale. Historically, most bubbles have lasted between five to six years. However, this one has persisted for 16 years, reaching unprecedented levels to the extent that it has become almost invisible.
The bubble’s inception can be traced back to Mario Draghi of the EU, who pledged to print unlimited money to combat short sellers, a policy that has continued unabated. Harry Dent has consistently warned that this bubble has escalated to heights incomparable to those of the 2000s or 1990s. He attributes the massive trend to an overreaction by governments, especially the US, to COVID-19. Since 2008, $27 trillion has been injected into the U.S. market and economy, with $11 trillion distributed in the last two years alone, leading to an inflation rate of 9.1% in the US and other countries.
This led to the most significant monetary tightening since 1980-81, with a 525 basis point increase in interest rates and a $1.9 trillion reduction in the Fed’s balance sheet. Similar actions have been taken globally. However, the full effects of such stimulus and tightening policies, which typically take about 1.5 years to manifest, are yet to be fully realized, as noted by Harry Dent.
