Marc Faber, editor and publisher of the The Gloom, Boom & Doom Report, has made many bearish calls on financial assets in recent years while markets have kept hitting record highs. But he is sticking to his guns with his call for a 30 percent drop in U.S. stocks.
Faber told USA Today the risk-reward of buying equities at current levels is not particularly favorable.
"Faber hasn't been right in a long time though he lays claim to warning of the '87 market crash and the 2008 financial crisis," the newspaper noted.
Editor’s Note: New Warning - Stocks on Verge of Major Collapse
In particular, Faber agrees with the Federal Reserve Chair Janet Yellen, who last week testified before Congress that social media stocks and biotech stocks in particular suffer from "overstretched valuations."
"I think that social media stocks are in a bubble phase. I also think that a lot of biotech stocks are in a bubble phase. Aside from the fact that the entire market is in a bubble phase, these are two sectors that I would regard as highly priced," he stated.
Despite his reservations, Faber recommends individual investors remain diversified — he says a portfolio of roughly 25 percent in stocks, 25 percent in real estate, 25 percent in cash and bonds, and 25 percent in gold makes sense.
"We could be entering a similar environment like in '87, where we have a blow-off and a more serious bounce in the second half of the year. Since 1929, we've had 15 bear markets. We have a bear market approximately every six years."
According to Faber, the average bear market has given back five years of price gains. "Let's consider that all the bulls are right and the market goes up for the rest of the year, and then you give back five years! Then we are in 2015 at essentially the 2010 level," he warned.
Market analyst Avi Gilburt wrote in a column for
MarketWatch that recent market gains have edged stocks considerably closer to a correction.
"Can you smell it? It's the smell of a market in a topping process," he wrote.
"It is characterized by the whipsaws, along with the feelings of overall bullishness, as the market keeps heading higher in the face of bad news, which can only mean one thing."
Gilburt is a market technician and expert on Elliott Wave theory, which he believes is warning a downdraft is ahead.
The S&P 500 is approximately 1 percent off its all-time high.
"It doesn't take much for buyers to find an excuse to step in, and that pattern shows absolutely no sign of letting up," Jason Goepfert, founder of Sundial Capital and author of daily newsletter SentimenTrader.com, told
The Wall Street Journal.
The Journal reported that of the 74 S&P 500 companies that have reported quarterly results, 73 percent of them have beat analyst estimates on sales, according to FactSet data. If that percentage holds, it will be the highest beat rate since the FactSet started tracking the results in 2008.
Editor’s Note: New Warning - Stocks on Verge of Major Collapse
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