Is a “SURPRISE recession” on the way? Veteran technical analyst warns Wall Street has become too complacent about the U.S. economy and predicts more banks could fail like SVB
Wall Street has become too complacent about the risk of recession, a veteran technical analyst has warned, predicting that the S&P 500 could plunge to lows not seen since the pandemic.
Milton Berg, who has worked in the financial services industry since 1978, said the collapse of Silicon Valley Bank (SVB) earlier this year was “just the tip of the iceberg” and issued the hypothesis that more companies could go bankrupt.
His comments come after economists at Goldman Sachs cut the chances of America entering recession in the next 12 months from 20 to 15 percent.
The bank said it had “confidence” in the Federal Reserve’s policy to control inflation by raising interest rates from near zero to their highest level in 22 years.
Berg told the Forward-looking guidance Podcast: “Everyone has given up on a recession for some reason. All of a sudden the Fed keeps tightening rates and suddenly everyone is saying there’s no recession.
Milton Berg, who has worked in financial services since 1978, said the collapse of Silicon Valley Bank (SVB) earlier this year was “just the tip of the iceberg” and speculated that d other companies could go bankrupt.
“Goldman Sachs, which a year ago said there was a 65 percent chance of recession, is now down to a 15 percent chance of recession.”
But he cautioned: “It’s just amazing how, when you have a strong market, all of a sudden people are doubtful about a recession.” But now is the perfect time to worry.
“When the economy looks good, that’s when you get a surprise recession.”
Berg – who advised elite investors such as George Soros and Stanley Druckenmiller – later added: “The reality is that the economy has been weak and could become weaker. We are more likely to face a recession now than at any time in the last two years.
The banking sector was plunged into crisis when Silicon Valley Bank collapsed on March 10. It was the third bank to fail in U.S. history and the largest since the 2007-2008 global financial crisis.
It was quickly followed by the collapses of First Republic Bank and Signature Bank.
Much of the panic has since subsided, with investors quickly emerging from the crisis.
But Berg warned: “SVB is just a canary in a coal mine, the tip of the iceberg. It’s my opinion. This will happen to many more banks, to many more assets.
Experts have been sounding the alarm about a recession in the United States since inflation began to take hold following Russia’s invasion of Ukraine.
Jan Hatzius, chief economist at Goldman Sachs, said in a research note on Tuesday that the bank had reduced the chances of America entering a recession in the next 12 months from 20 to 15 percent.
Fed interest rates climbed to 5.5% in July, their highest level in 22 years
However, much of the economy has defied expectations. The Fed’s aggressive interest rate hike policy has also reduced the annual inflation rate to 3.2 percent, from 9 percent last summer.
And experts say the stock market has entered a “bull market” after the S&P 500 rebounded dramatically after falling about 20% in 2022.
A “bull market” is a nickname used by Wall Street for periods when the S&P 500 rises 20% or more from its most recent low.
But Berg urged caution over this “correction” as past economic models suggest stocks are likely to fall again.
He said that in a “very, very bad recession,” the S&P 500 could fall to the lows seen in March 2020.
However, he added: “I’m not predicting that, I’m just saying we need to keep in mind what could happen.”
His comments are at odds with those of Jan Hatzius, chief economist at Goldman Sachs, who praised Fed Chairman Jerome Powell’s approach as helping to avoid a recession.
Hatzius wrote in a research note: “Our confidence that the Fed is finished raising rates has increased over the past month.
“We view Chairman Powell’s promise at Jackson Hole to ‘proceed with caution’ as a signal that a September hike is off the table and that the hurdle to a November hike is significant.”
The Fed is expected to meet again on September 20 to decide whether another hike is necessary. The Fed’s benchmark rate provides a guideline for how much banks should lend and borrow.