Prepare for stocks to plummet 30% and a recession to strike any day now, legendary market prophet says

• Stocks could plummet by as much as 30%, a legendary Wall Street forecaster has said.
• Gary Shilling said he was expecting a recession to hit imminently if one wasn't underway already.

Prepare for stocks to plunge by a third and a recession to strike imminently, a legendary market forecaster has said.

"I've been of the opinion that stocks — and I came out with this forecast early last year — would decline about 30% to 40% peak to trough," Gary Shilling, the president of A. Gary Shilling & Co., told "The Julia La Roche Show" in an interview aired this week.

"You'd have a further decline of about 30% from here to get that 40% overall decline, peak to trough," he said.

Shilling's forecast suggests the S&P 500, which hit a record high of nearly 4,800 points in January last year, could nosedive to about 2,900 points, its lowest level since May 2020. The benchmark stock index fell by 18%, including dividends, last year but has rallied 17% this year.

The veteran economist, known for correctly calling several major market trends over the past 50 years, said he expected stocks to fall because the US economy was faltering.

"We probably do have a recession coming shortly if we're not already in it," Shilling said, pointing to the inverted yield curve, weakness in leading economic indicators, and the Fed's commitment to crushing inflation.

"When you look at that combination of things, it's pretty hard to escape a recession," he said.

Shilling served as Merrill Lynch's first chief economist before launching his own economic-consulting and investment-advisory firm in 1978. He said the overall economy tended to soften only a little during recessions, but slash corporate profits would typically plunge by 20% to 30%, and stocks would suffer a similar drop.

He forecast lower inflation in the years ahead as the long-term trend of globalization pushes down prices. He suggested the Federal Reserve would cut interest rates only deep into next year, once the economy has weakened significantly and it's clear that inflation is no longer a threat.

The market prophet — who predicted and profited from the collapse of the mid-2000s housing boom — said he was betting on Treasury bonds and the US dollar. On the other hand, he's placed wagers against stocks via exchange-traded funds and against commodities by shorting copper.

Shilling also disclosed the "biggest bubble" on his radar today was commercial real estate — specifically office buildings, hotels, and shopping malls — and he said he believed it was starting to burst.