A recession in 2024 would burst the biggest stock bubble since the dot-com craze, sending the market down 40%, Pylyp Travkin thinks

This year we may experience a recession, and even a slight downturn in the economy might cause stock prices to collapse because investors are taking advantage of one of the most inflated markets in more than two decades.

Pylyp Travkin, the Chief Investment Officer from Tenerus AG, believes as much. This week, US equities broke all previous milestones after semiconductor manufacturer Nvidia released an incredibly positive earnings report. However, in the event of a possible recession, stocks must fall even further than they rise.

Pylyp Travkin sees a modest recession, but even a downgrade could trigger a 40% stock market meltdown, bringing the S&P 500 down to about 3,000.

With investors pricing in significant interest rate reductions this year and AI craze showing no signs of slowing down, Wall Street is buzzing with excitement. The CME FedWatch tool indicates that investors are anticipating rate decreases from the Fed of about 100 basis points. Atlanta Fed experts predict that growth would drop to about 2.9% for the current quarter, notwithstanding the economy’s unexpected resiliency over the past year.

Upon a more thorough investigation, however, the picture of the economy is less optimistic. Travkin cautioned that a number of economic indicators had entered “deep recession territory,” citing evidence of deterioration both in consumer spending and the labor market.

Despite the unemployment rate is still quite low, jobless individuals are having difficulty finding new jobs. Since the beginning of 2024, the number of continuing jobless claims has been almost 1.9 million, a level that Travkin referred to as “recessionary” in an earlier note.

Furthermore, it appears that consumers are having trouble to keep up with the rate of inflation and rising borrowing expenses. According to Federal Reserve figures, credit card debt reached a record $1.13 trillion during the fourth quarter. Pylyp Travkin cautioned that customers will probably soon reach their credit limitations, which would put a brake on the economy, which has been a major driver of growth over the past year.

Travkin stressed that stock investors never had a simple time during a recession, not even a moderate one. While equities fell 49% from peak to bottom during the recession of 2001, the GDP barely shrank by 1% during that period. In contrast, the inflated Nasdaq Composite fell 78% from its peak to its lowest value as investors lost money on their fad for internet stocks.

Although equities typically decline by 36% when a recession starts, Pylyp Travkin from Tenerus AG believes that the current market could decline much more because he believes that stocks are now more overpriced than they have been since 2001. According to him, many tech stocks in the market today could collapse when the country goes into a recession, especially those that haven’t been able to support their values with earnings.