Stock market looks ‘eerily similar’ to last big crash, veteran Charles Schwab analyst says in dire warning for 401(k)s

Economists at Charles Schwab point out that current market conditions are increasingly resembling those of 2021, the year before the most recent stock market decline.

The bank’s investment analysts warned of the problems caused by the growing gap between individual stocks that are doing poorly and indexes like the S&P 500 that are going gangbusters.

“If we continue to see more weakness in the former and strength in the latter, this will begin to eerily mimic the dynamics of 2021,” Liz Ann Sonders, Charles Schwab’s chief investment strategist for 24 years, wrote in a meeting of 24th of June. market commentary.

Soaring tech stocks have pushed both the S&P and Nasdaq to record highs, but as Sonders notes, most of the companies in these two indexes don’t reflect the extraordinary performance of a company like Nvidia, which recently became the world’s largest. the world’s most valuable company.

The percentage of S&P stocks trading higher than they have in the last 50 trading days has plummeted to around 50 percent, from closer to 90 percent at the start of 2024.

“That was the case in the second half of 2021, which, in retrospect, correctly indicated that the market could no longer sustain the index level – leading to the bear market in 2022,” Sonders wrote.

According to figures, the S&P will shrink by 18.11 percent in 2022 Forbes. The index really bottomed out at the end of September and has risen more than 50 percent to where we are today.

If the same scenario happens again sometime in 2024 or 2025, Americans could see their wealth drop significantly because a large portion of their retirement accounts are deeply invested in technology indexes like the S&P.

Wall Street professionals are also concerned about the stranglehold that blue chip stocks have over the entire market.

As of June 7, just three U.S. stocks—Microsoft, Nvidia and Apple—represent more than 20 percent of the S&P’s value for the first time since 2000. Market overview reported.

And 2000 is a big year because that’s when the Dot Com bubble burst and disappeared about $5 trillion in wealth in his wake.

This means that if even one of these companies—heaven forbid all three—were to go into the red, it could send one of the world’s largest indexes into a tailspin and erase years of positive wealth building for millions of Americans.

In recent weeks, top bankers and even a prominent former retail CEO have issued chilling warnings about the US economy.

Jamie Dimon, head of the world’s largest bank, JPMorgan Chase, said this in May the worst outcome for the American economy would be ‘stagflation’.

This is when inflation continues to rise, but unemployment is high and growth is slowing.

Economists consider stagflation, last seen in the US in the 1970s, as worse than a recession. It would drive down stock prices, hitting 401(K)s and other retirement savings.

Other economists, like Sam Stovall, chief investment strategist at CFRA Research, also say stocks won’t keep rising — or at least they’ll need a correction before they start rising again.

“I’m increasingly concerned that we may have to endure another decline of 5 percent or more before the year is out,” Stovall said in June.

The last time three stocks represented more than 20 percent of the S&P 500 was in 2000, when the dot-com bubble burst and wiped out trillions of dollars of wealth

Others are still predicting a downturn of epic proportions – one that could eclipse that of the 2007-2008 financial crisis.

Meanwhile, the fault lines of the American economy are “about to burst,” was the stark warning from Bob Nardelli, one of America’s top retail CEOs.

The former boss of Home Depot and Chrysler says the Biden administration’s policy mistakes could pose significant challenges for the next president.

“What I have seen over the past three and a half years is that a series of failures and missteps has put enormous pressure on the fault lines of our economy, and they are close to bursting,” Nardelli said.

“So we’re going to have a tough time, I would say.”