Tags: Stocks | drop | 40 | percent

Marc Faber: US Stocks Can 'Easily Drop 20 to 40 Percent'

By    |   Thursday, 23 July 2015 06:33 AM

For several years, Marc Faber, publisher of The Gloom, Boom & Doom Report, has been arguing that U.S. stocks are overvalued and poised for a major plunge.

And he's not changing his tune now that the S&P 500 index stands just 1 percent beneath its record high. "In the U.S., the market could easily drop 20 percent to 40 percent," Faber told CNBC. A 40 percent drop would take the S&P 500 to 1,270 from 2,116 Wednesday morning.

He noted that valuations are high. The S&P 500 carried a trailing price-earnings ratio of 21.24 Friday, up from 19.54 a year earlier, according to Birinyi Associates.

Other bearish factors include an increasing number of companies trading below their 200-day moving averages and more stocks declining than advancing, Faber said.

Faber also sees problems stemming from the plummet in commodity prices to a 13-year low Wednesday. "Maybe this is the signal that there are strong deflationary forces, despite all the money-printing by central banks," he said.

Not everyone is bearish on stocks. "History suggests an annualized return in the mid-teens over the next 10 years may be possible," D. David Jilek, chief investment strategist for Gateway Investment Advisers, writes on MarketWatch.

Looking at the S&P 500 going back to 1928, 20-year annualized returns average 11.22 percent and 30-year returns average 11.24 percent, Jilek says. For the market to meet those averages for the periods ending in 2025, stocks would have to return an annualized 14.67 percent over the next 10 years to hit the 20-year average and 16.09 percent to meet the 30-year average.

To be sure, if the bull market lasts another 10 years, that would set a record by almost four years, Jilek notes.

So over the next 10 years, the current bull market may end, a bear market — defined as a 20 percent loss — may ensue, and stocks may still return an annualized 14.67 percent during the period, he says.

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For several years, Marc Faber, publisher of The Gloom, Boom Doom Report, has been arguing that U.S. stocks are overvalued and poised for a major plunge.
Stocks, drop, 40, percent
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2015-33-23
Thursday, 23 July 2015 06:33 AM
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