The U.S. stock market remains pricey, narrowly concentrated and not as fit as it may appear, economist and investment advisor A. Gary Shilling suggested on a webcast Thursday. He said that equities easily could be in for a 30% drop.
Such a fall could come as a "big shock" to many market watchers, he warned, noting that equities have put in a very strong performance.
"I think a lot of it has been driven by speculation, cryptocurrencies, et cetera … It's not a broad spectrum," Shilling said, citing a "big divergence" between the "Magnificent Seven" mega-cap tech stocks and the remaining S&P 500.
"In other words, you've had a heavy concentration in a relatively few stocks that tend to be very, very speculative," he said. "And it is not a very healthy kind of stock market in my view, at least."
Stocks are also expensive, Shilling said. The cyclically adjusted price-to-earnings ratio, which looks at inflation-adjusted S&P 500 earnings over the past decade relative to stock prices, has averaged 17 over the long term but now sits at 36.65, he explained.
