The S&P 500 index of top US stocks briefly climbed above 5,000 for the first time in history, before retreating to end the day at 4,997.91. Few doubt it will close above 5,000 for the first time ever, most likely today. And that’s when the trouble is likely to start. The rally has gone too far. Now comes the crash, experts say.
The S&P 500 has ended climbed higher for the fifth week in a row. It’s a staggering performance. Especially since other stock markets are continuing to struggle.
While US shares are up 5.38 percent year-to-date, the UK’s beleaguered FTSE 100 has fallen another 1.62 percent.
Last year, the US market grew 25 per cent, 10 times as fast as the FTSE 100 which rose just 2.5 percent.
Its success has been driven by the so-called Magnificent Seven technology stocks: Apple, Microsoft, Amazon, Facebook-owner Meta, Google-owner Alphabet, chipmaker Nvidia and electric car maker Tesla.
Last year, Nvidia’s shares rocketed 230 percent, driven by artificial intelligence (AI) mania, while Meta stock jumped 185 percent and electric car maker Tesla rocketed 130 per cent.
Nick Saunders, chief executive of stock trading platform Webull UK, said the Magnificent Seven are the stock market, as far as many investors are concerned. “Instead of asking how the Dow Jones has done, they’re looking at the price of Tesla.”
Yet now things may have gone too far.
Tesla has had a tough start of the year. Its shares are down nearly 25 percent, as it faces growing competition from cheap Chinese electric vehicle makers.
Charles Stanley’s equity analyst Ismael Rashid said Tesla has gone into a sharp reverse that may be hard to stop. “The Magnificent Seven may have already lost one of its members.”
Chris Beauchamp, chief market analyst at IG Group, said the “cracks are beginning to show” with Apple and Alphabet also struggling.
Apple’s recent performance has been a wake-up call. “Its heavy reliance on the Chinese market for sales and manufacturing has made it vulnerable.”
Beauchamp added: “Alphabet has struggled to keep pace, potentially due to concerns over advertising revenue growth amidst increased regulatory scrutiny.”
US stock market success is now “vulnerable” as it has been concentrated in just seven huge companies, he added.
Many fear the Magnificent Seven expensive. The S&P 500 trades at 33.64 times earnings, way above the long-term average.
By comparison, the FTSE 100 trades at around nine times earnings.
The US is heading for a fall. One analyst gives it two weeks.
Tom Lee, a respected financial analyst and strategist at Fundstrat, is a renowned Wall Street “bull”, but he has now turned bearish as he fears the worse.
On Tuesday he warned clients that after surging 21 percent in 13 weeks, the S&P 500 is due a “drawdown”.
He reckons it will break through 5,000, and then burn out. Most likely within a couple of weeks.
History repeatedly shows that when the US market has risen so rapidly, for such a lengthy stretch, it cannot hold.
Lee said he expected a seven percent fall, which would drag the S&P 500 to about 4,600 based on current levels.
Others are more fearful.
One highly respected market guru said the S&P 500 is set to crash by a staggering 25 or 30 percent.
If correct, that would be a massive blow to investors who are buying into the rally at today’s inflated prices.
Gary Shilling, a former Merrill Lynch’s first chief economist who now runs his own consultancy, reckons the US is in recession and the market will take a beating.
Investors have been crossing their fingers and hoping for a soft economic landing after recent troubles, but Shilling reckons they won’t get it.
“Soft landings are pretty rare. There’s only been one in the entire post-war period and that was in the mid-90s.”
He added: “A soft-landing forecast is bucking history.”
Plenty of people have warned of a stock market crashed before, been proven wrong. At today’s levels, it could easily happen. Investors should tread carefully before buying into the latest boom.