Why U.S. Stocks Are Flashing Code Red

Episode #328 | September 25, 2023

Episode #328 | September 25, 2023

Why U.S. Stocks Are Flashing Code Red

In This Episode

On this week's Stansberry Investor Hour, Dan and Corey are joined by Joel Litman, the founder of our corporate affiliate Altimetry. Joel gives our listeners an in-depth explanation for his bearish outlook on U.S. equities and details why market conditions today are so concerning.

Dan and Corey kick off the podcast by discussing the latest Federal Reserve meeting, a recent study about what happens to stock price when artificial intelligence ("AI") gives answers at earnings calls instead of humans, and the emergence of a robot CEO for a rum company. Plus, they talk about AI in general – whether it will replace jobs, how it's similar to the advent of the Internet, and what the future could look like. As Corey says...

All kinds of stuff is going to happen in the next 10 years with AI. The more I hear about it, the less I think the [AI-related stocks are in] a bubble. There's something to it.

Next, Joel joins the conversation and gives the reasons for his growing bearish sentiment. He points out some significant red flags that have caught his and his fellow analysts' attention, including the historical pattern of a credit crisis preceding every major bear market. Joel explains that the current sentiment and valuation trends are heading in the wrong direction. Additionally, he observes signs of a credit breakdown that remind him of the 2008 financial crisis...

We're almost getting a combination of early 2020 red flags with early 2008/late 2007 red flags. That means it's not going to be a pretty 2024. We're very, very concerned.

Joel then moves on to the impact of high interest rates on the market. He explains that he and the folks at Altimetry employ "Uniform Accounting" principles, meaning they do not use the same price-to-earnings multiples as Bloomberg or CNBC. Instead, they perform their own calculations. Joel argues that, to control inflation, interest rates need to be maintained at a level higher than what Fed Chair Jerome Powell seems to favor. Though, he does doubt Powell will cut rates as aggressively as many investors are expecting...

[Inflation is] nowhere near down as much as [Powell would] like, and that means why not keep interest rates up to slow things down a bit? I don't see him cutting as much as market valuations are pricing in.

Finally, Joel discusses U.S. stocks being overallocated in investors' portfolios today and why this serves as a concerning indicator of market conditions. Plus, looking globally, he details why he finds Chinese and Russian stocks unattractive for investment.