Scranton has long been warning about the growing disconnect between market performance and economic fundamentals, pointing out that ultimately the markets would have to make “fundamental sense” again.
FORT LAUDERDALE, Fla. (PRWEB) February 10, 2018
With the stock market officially in correction, many media outlets sought comment from bestselling author and market analyst David Scranton, who has frequently expressed concern that the market was overdue for a major downturn. The Dow Jones Industrial Average lost over 1,000 points twice in a single day this week, while the S&P 500 sunk more than 10 percent from its record high in January. The sell-off puts the market in full correction and comes on the heels its second-best January in history, which saw every market index hit new record highs multiple times.
The dramatic turnaround took some analysts and economists by surprise, particularly since the U.S. economy is, by most measures, moving in the right direction. But Scranton, on his popular national TV show, The Income Generation on Newsmax, discussed this fact with financial notables Dennis Gartman and David Hightower over the last two weeks. David and his guests agreed that despite recent record highs, no one was really surprised at the sell-off.
“For one thing, the market has been overvalued in relation to the economy for a long time, and those record highs continued unabated after Donald Trump’s election,” Scranton said. “For another, the market has been more influenced by artificial factors than by economic fundamentals ever since the Federal Reserve launched quantitative easing. All that short-sighted stimulus was destined to have negative consequences down the road.”
Scranton has long been warning about the growing disconnect between market performance and economic fundamentals, pointing out that ultimately the markets would have to make “fundamental sense” again. In fact, in his 2018 market forecast, he said he believed the market would have another double-digit year, either by continuing to grow irrationally based on momentum, or by going into correction with a drop of at least 10 percent—which it already has as of this week.
As to whether this correction will segue into a sustained drop on par with those that occurred from 2000 to 2002 and from 2007 to 2009 remains to be seen, Scranton said. But he has shared many times in his book, on his TV show, and in his national PR appearances that he believes the markets are overdue for a third such drop, and that historical evidence suggests this one will be at least 40 percent, perhaps even more than 70 percent.
“That’s important to understand for investors who are retired or within 10 years of retirement,” Scranton said, “especially if they still haven’t reduced their market risk and shifted their focus to protection and income. Could the markets turn around again, regain their losses and even notch a little higher? Absolutely. But is it really worth risking a 40 to 70 percent loss to find out?”
Investment Advisory Services offered through Sound Income Strategies, LLC, an SEC Registered Investment Advisory Firm.