A top economist has sounded a major warning on key assets like stocks, gold, silver, and the crypto market.
The stark warning as these assets have become highly volatile in the past few weeks or months. Crypto prices have sunk, with Bitcoin (BTC) and most altcoins being in a technical bear market.
American stocks have also wavered, with the S&P 500 Index remaining below its all-time high. It has barely moved this year. Similarly, the Dow Jones and Nasdaq 100 indices have remained in a tight range lately. Gold and silver prices have also pulled back from their all-time highs.
In a statement on Sunday, Mark Zandi, the top economist at Moody’s, warned that the financial market was fraught and that it may experience a sharp pullback soon.
He pointed to the ongoing complacency among investors, who are using dips as buyiyyng opportunity. Also, he pointed to the increasing speculation, where investors believe that prices will rally in the future because they did so in the past.
Zandi has identified more risks in the market. For example, he observed that the US economy was growing below its potential, with the real GDP growing by slightly above 2%. The estimated potential is about 2.5%.
At the same time, the labor market has flatlined, with the unemployment rate remaining above 2%. The economy added less than 200,000 jobs last year, the smallest increase in years.
Zandi also pointed to the ongoing woes in the Treasury market, where long-term bond yields have continued rising in the past few months. Hedge funds have increased their leverage in the market, leading to more risk as the US public debt continues rising.
Zandi also believes that the stock market has become highly overvalued and disconnected from the economy.
Stock and crypto prices are vulnerable amid major risks in the market. The first major risk is that Donald Trump may launch an attack against Iran anytime soon.
In a statement last week, Trump noted that he was considering a limited strike to push the Iranians to the negotiating table. Iran, on the other hand, has warned that any attack will lead to a wider war that may lead to a wider war in the region.
A war would lead to more volatility in the stock and crypto markets by stimulating inflation in the US. A high inflation rate, on the other hand, would make it hard for the Federal Reserve to cut interest rates.
There are also trade risks as Donald Trump considers responding to his Supreme Court loss last Friday. He announced a global tariff of 15% using another rule that allows the president to levy tariffs for 150 days.
