After watching strong equities performance for years, too many investors expect stocks to rebound soon, economist and investment advisor A. Gary Shilling said Monday, explaining that the bear market's "puke point" remains a way off.
For the bear market to reach its bottom, people must be so fed up that "they want to regurgitate their last stock and swear they'll never buy another one," Shilling told ThinkAdvisor. "Far too many people think there's a near-term recovery. You need to get that recapitulation" that's typical of market bottoms. "I don't see any signs of capitulation," he added.
"You've got to run out of sellers," but "far too many people cling to the idea that this is a short-term phenomenon," Shilling said. "You have to have a change in attitude and I just don't think there's any evidence of that yet."
As he wrote in his recent October outlook, Shilling expects the S&P 500 index to drop roughly another 20% this year to reach his forecast of a 40% decline from January's peak.
"We've had a long run in stocks to the upside," from right after 2008 financial crisis, he noted in a phone interview. While the COVID-19 pandemic caused a brief setback in the market, "you had tremendous fueling of investor funds by fiscal stimuli that many people got in the checks after the pandemic and also the Fed pumping money into the economy," he said, noting the Fed is now withdrawing money.
That performance appeared to create an atmosphere where people think they can't lose with stocks, Shilling said.
In his recent published commentary, Shilling recommended that investors sell or short stocks in general as corporate earnings tank and instead hold large cash positions.
"The history is that when you get major bear markets that there are no places to hide," he told ThinkAdvisor. The so-called defensive stocks like utilities, health care and consumer staples "generally hold up better than the aggregate market but they all go down in major bear markets," he said.
