"The Fed always messes it up" – US market expert expects stock market crash

McCullough: The Fed was too late to start fighting inflation – and now it’s overdoing it

His recommendations: gold, silver, mining stocks, commodity stocks and Indonesia
When is the end of the sale in sight? According to McCullough, that determines the Fed

Keith McCullough, founder and CEO of the analysis company “Hedgeye Risk Management”, warned at the beginning of the year of a significant downturn in the stock market. Instead of stocks, he recommended investing in gold and silver. Now Keith McCullough repeats his warnings in an interview with “MarketWatch”: The bottom is far from being reached, a real stock market crash is still to come – because of the failed monetary policy of the US Federal Reserve Bank (Fed).

“Too late, too intense” – McCullogh criticizes the monetary policy of the Fed

McCullough identifies a key culprit in the current stock market downturn: the Fed. The US Federal Reserve’s monetary policy was “too restrictive too late”. As early as June 2020, his company “Hegdeye” warned of persistently high inflation rates, but the Fed described them as “transitional” until mid or even the end of 2021, as “temporary”. Fed Chairman Jerome Powell is now too late to fight inflation. “As always,” she “blew it this time,” according to the market expert.

It is just as bad for the stock markets that the Fed not only reined in the previously ultra-expansive monetary policy too late, but is also exaggerating. The six to seven interest rate hikes currently priced in by the market would overwhelm the economy, increase unemployment and thus increase the likelihood of a recession.

McCullough: US economy is in “Quad 4” – falling inflation and falling growth

Underlying McCullough’s bearish forecast earlier in the year, which now appears to be coming true, is what he has dubbed the “Quad 4” phenomenon of falling inflation rates meeting slowing economic growth. In fact, McCullough, like some other market analysts, assumes that US inflation rates have already peaked or are about to. However, inflation remains high. For the fourth quarter, McCullough expects prices to increase by 6 percent over the year – he then believes that rising inflation is out of the question.

Likewise, the post-corona economic growth, which drove the international markets up in the second half of 2020 and 2021, will also slow down considerably. This toxic mix of the “Quad 4” has always resulted in an S&P 500 crash of at least 20 percent throughout stock market history, McCullough said. This time, the situation is particularly bad because, of all things, the Fed wants to implement an extremely restrictive monetary policy in this problematic macroeconomic situation.

Falling asset prices affect consumer sentiment

McCoullough sees the connection between stock market prices and purchasing behavior as an important, mutually reinforcing process. With the exception of commodities such as gold, l/a> or silver, commodity and energy companies as well as individual more defensive stocks such as Coca-Cola or Procter Gamble, almost all asset prices have been in decline since November 2021. According to McCoullough, this has an impact on consumers’ buying mood, which is essential for economic health. The wealth of people in the US “reached its highest level in November 2021” and has been falling since then – this will have an impact on purchasing behavior. An economic slowdown is thus intensified by the stock market downturn – an extremely dangerous positive feedback.

McCullough recommends gold, silver, mining stocks and Indonesia ETF

Where does the bearish market expert see safe havens? How should investors position themselves in such challenging times? McCullough continues to recommend the classic of all safe havens: gold. Silver and mining stocks are also good choices at the moment. He also recommends holding short and long-term US government bonds – he still thinks little of the sold-off tech stocks. In general, his exposure to shares is extremely low; he currently only sees promising investment opportunities in emerging markets that export raw materials, particularly in South Africa and Indonesia. When does McCullough plan to invest more in the US stock exchanges again?

Bottom could be reached in June – if the Fed deviates from its hawkish course

This depends on how the Fed reacts to the fall in prices on the US stock exchanges and the increasing threat of recession. In view of the growing pessimism about the future of the US economy, McCullough expects the Fed to move away from its very hawkish position and significantly reduce the number of interest rate hikes: “Personally, I don’t think the Fed can push through more than two interest rate hikes.” The US central bank around Powell will probably have to accept that the decision to push through six to seven interest rate hikes was misguided – because in the coming months the negative expectations would also be reflected in weaker company and unemployment figures. The Fed could finally back down in June, but stock markets will have crashed before then, McCullough said. A less restrictive Fed will calm the markets again after the sell-off, the stock markets could work on bottoming out and then rise again. Then the tech companies, which have recently become cheaper, would also be worth a closer look, according to the stock market expert.

However, McCullough at least does not rule out a much more dramatic scenario. If the Fed does not abandon its enormously hawkish monetary policy despite the deteriorating macro and microeconomic data, this would have serious consequences: “At the end of the second quarter, in June, I expect the landing point. But if the Fed does not bring about this landing point, then there will be no such landing point”. The stock markets would then have much darker days ahead of them.

Editorial office finanzen.net

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