A veteran market investor has voiced concerns about the U.S. economy under a potential second Donald Trump administration, drawing comparisons to the economic climate preceding the 1987 Black Monday stock market crash.
Lawrence McDonald, founder of the Bear Traps Report newsletter, appeared on Fox Business on Tuesday and highlighted what he described as “diminishing returns” from Trump’s tariff policies. He also pointed to rising global bond yields as particular causes for concern.
McDonald explained that when interest rates increase, bond prices fall. He noted that as bonds begin to offer competitive returns relative to stocks, the risk-reward balance deteriorates for investors. "At some point, bonds become a very interesting alternative to stocks," he stated.
He explicitly compared the current situation to the summer of 1987, the period leading up to the Black Monday crash. However, McDonald stopped short of predicting an outright market collapse, emphasizing instead the need for vigilance.
"I’m not saying we’re going to crash but historically when bonds start to threaten stocks at this degree, especially with global rates across the G7 going up, investors watching us right now have to have extreme caution,” McDonald said.
When asked by host Cheryl Casone about potential solutions, McDonald suggested investors emulate the strategy of longtime investor Warren Buffett, who maintains significant cash reserves. He also advised against participating in what he termed a “crowded trade” when bonds present such a threat to stock investments.