Prepare for a dramatic decline in the markets: the pessimistic investor’s warning

Gary Schilling thinks that almost nothing can stop a recession in the US this year. The veteran economist, a graduate of Merrill Lynch and who predicted the recession of 2008, shared a gloomy forecast for the markets and the economy in an interview with Business Insider this week. In his opinion, it is almost inevitable that the US will slide into recession this year. He also predicts a major correction in the market as a result of a whirlwind in the value of the companies.

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Schilling said he believes the S&P 500 could drop as much as 30% by the end of the year. According to him, the only things that can prevent a recession at this stage are a burst of fiscal incentives or a show of strength by the American consumer – both of which, in his opinion, are unlikely.

Schilling pointed to several signs that the economy is on the brink of recession: stagnation in the housing market, a dramatic decrease in private sector capital spending (as opposed to spending on artificial intelligence) and the weakness of the American consumer, who is beginning to feel the pain of the latest wave of inflation, as a result of the war against Iran. According to him, this comes in combination with a slowdown in real disposable income growth and a slowdown in the annual personal savings rate. “Consumers are really walking on very thin ice in terms of income and in terms of people’s willingness to spend,” Schilling said.

Even in relation to the markets, Shilling is really not optimistic. He thinks valuations have inflated to alarming levels in recent years. “The shares are very expensive and it is likely that we will see a significant correction in the relatively near future,” he said. According to him, the timetable for the correction is the end of 2026. “A drop of 20% or 30% is not a big deal by historical standards. So I would say it is probably expected.”

Schilling noted that it is not clear what will be the trigger for the decline in shares and it is not certain that it is the threats of artificial intelligence. “I’ve made a career of looking for the hidden flaws in the market, and I don’t see anything right now that screams for a big sell, but that doesn’t mean it’s not there,” he said.

Schilling, known for bearish (pessimistic) predictions about markets, warned investors of a possible recession and a broad decline in stocks over the past four years. Last year, he said the plunge in stocks could be caused by “extreme speculation” in financial markets, shining a spotlight on the hype around artificial intelligence and crypto.