The current rise in stocks and other risky assets could end with a massive market crash and recession. This forecast was given by macro strategist Henrik Zeberg from the investment company Swissblock. According to him, a sign of this is the sharp decline in bond yields and the dollar. The recession indicator, as he recalls, was triggered back in July.
Zeberg assesses the economy using his own system of signals, one of which is the recession indicator. To confirm the forecast, the strategist explains, he needs to see two more events: a sharp decline in bond yields and a peak in the stock market, after which a downturn will begin. Bond yield is the percentage that an investor receives for lending to the government or a company. When it falls, bonds are actively bought, and money flows from risky investments to more reliable ones.
According to Zeberg's observation, an unusual situation is currently occurring in the markets: stocks and other risky assets are rising, while bond yields and the DXY dollar index, which shows the dollar's rate against a basket of major world currencies, are rapidly declining. The strategist expects that many analysts will explain this as the success of the Federal Reserve, which raised rates and brought the bond market under control. Zeberg considers this a mistake and calls the decline in yields a "deflationary train" rushing towards the markets.
Deflation is a decrease in prices in the economy. It may seem beneficial to consumers, but for the economy as a whole, it is considered a bad sign: people delay purchases in anticipation of even lower prices, companies earn less, cut costs and staff, and the economy slows down.
According to Zeberg's forecast, the current growth will for some time appear to be a good buying opportunity, but then the market is expected to experience a massive crash, and the economy a downturn.
This material is prepared solely for informational purposes and does not constitute financial advice or a recommendation.
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