Prominent figures on Wall Street are predicting a substantial stock market crash, with some warning of an 80% loss in 401(k) values. Morgan Stanley, in a recent research note, cautioned that tighter financial conditions, influenced by issues within artificial intelligence development and upcoming elections, could lead to an 8% drop in the S&P 500 in the coming months. However, the investment bank also suggested that following this downturn, the market could experience an even larger rally, with the S&P 500 potentially reaching an all-time high of around 8,000 by the end of 2026.
Mike Wilson, Morgan Stanley's chief US equity strategist, stated that the market has been in a correction phase since June, with much of the damage already occurring beneath the surface. He noted that nearly 90% of S&P 500 stocks are currently trading 10% below their recent peaks, indicating a broad market correction.
This outlook echoes some of the more dire predictions from market pessimists, such as Mark Spitznagel, founder of hedge fund Universa. Spitznagel has previously warned of an 80% market crash, though he now anticipates a significant euphoric rally before a major bubble bursts. Universa, which specializes in insuring investors against extreme market volatility, has seen substantial returns during past crises like the 2008 financial crisis and the March 2020 pandemic-induced meltdown.
Adding to the cautious sentiment, Paul Singer, founder and CEO of Elliott Investment Management, has advised his investors to focus on "fear of getting obliterated" (FOGO) rather than fear of missing out (FOMO). In a letter to investors, Singer pointed to persistent inflation, AI hype, and the US government's substantial budget deficit as indicators of a potential substantial bear market, drawing parallels to the conditions preceding the 1929 crash and the Great Depression.