The S&P 500 index of top US stocks briefly climbed above 5,000 for the first time in history yesterday, before retreating to end Thursday at 4,997.91. Today it may close above 5,000 for the first time ever. The good times won’t last. It could crash within weeks.
The S&P 500 has put on a staggering performance over the last year. It’s particularly impressive as most global stock markets continue to struggle.
Last year, the US market grew 25 per cent, 10 times as fast as the UK’s FTSE 100 benchmark index which rose just 2.5 percent.
US shares are up another 5.38 percent year-to-date, while the FTSE 100 has fallen 1.62 percent.
Wall Street’s success has been driven by the so-called Magnificent Seven technology stocks: Apple, Microsoft, Amazon, Facebook-owner Meta, Google-owner Alphabet, chipmaker Nvidia and electric car maker Tesla.
Last year, Nvidia’s shares rocketed 230 percent, driven by artificial intelligence (AI) mania, while Meta stock jumped 185 percent and electric car maker Tesla rocketed 130 per cent.
UK Stocks and Shares Isa investors have piled into the Magnificent Seven.
Nick Saunders, chief executive of stock trading platform Webull UK, said as far as many are concerned, the Magnificent Seven are the stock market. “Instead of asking how the Dow Jones has done, they’re looking at the price of Tesla.”
Yet now things may have gone too far.
Tesla has had a tough start of the year. Its shares have crashed 25 percent, as it faces growing competition from cheap Chinese electric vehicle makers.
Charles Stanley’s equity analyst Ismael Rashid said Tesla has gone into a sharp reverse that may be hard to stop. “The Magnificent Seven may have already lost one of its members.”
Chris Beauchamp, chief market analyst at IG Group, said the “cracks are beginning to show” at Apple and Alphabet, too.
“Apple’s heavy reliance on the Chinese market for sales and manufacturing has made it vulnerable. Alphabet has struggled to keep pace, potentially due to concerns over advertising revenue growth amidst increased regulatory scrutiny.”
The US stock market is now “vulnerable” as it is concentrated in just seven huge companies with expensive valutions, Beauchamp added.
Shares on the S&P 500 index are valued at 33.64 times earnings on average, which is way above the long-term valuation.
By comparison, the FTSE 100 trades at a mere nine times earnings.
The US is heading for a fall. One analyst gives it two weeks.
Tom Lee, a respected financial analyst and strategist at Fundstrat, is a renowned Wall Street bull, but he has turned bearish as he fears the worse.
On Tuesday he warned clients that the S&P 500 will break through 5,000, and then burn out. Most likely within a couple of weeks.
History repeatedly shows that when the US market has risen so rapidly it cannot hold.
Lee said he expected a seven percent fall, which would drag the S&P 500 to about 4,600 based on current levels.
Others are more fearful.
One respected market guru said the S&P 500 is set to crash by a staggering 25 or 30 percent.
If correct, that would be a massive blow to investors who are buying into the rally at today’s inflated prices.
Gary Shilling, a former Merrill Lynch’s first chief economist who now runs his own consultancy, reckons the US economy is heading into a recession.
Investors have been hoping for a soft economic landing after recent troubles, but Shilling reckons they won’t get it.
“Soft landings are pretty rare. There’s only been one in the entire post-war period and that was in the mid-90s.”
He added: “A soft-landing forecast is bucking history.”
Predicting a stock market crash isn’t easy. More call it wrong than right. Yet at today’s levels, it could easily happen. Stocks and Shares Isa investors should beware buying into the latest boom.