Is a bleak autumn ahead for the US stock market? Analyst: The uptrend is approaching its limit, may pull back by 12% before October

The hot trend in the US stock market may come to a sudden halt this autumn. Bill Blain, founder of Wind Shift Capital and a senior strategist, predicts a 7%-12% decline in the US stock market by October. He mentioned that three major threats faced by the US stock market in recent months will trigger the decline, as the continuous rise is approaching its limit.

In an interview, Blain stated that signs of an upcoming adjustment have fully emerged. Last week, chip stocks plummeted after the Biden administration proposed stricter trade rules with China. The S&P 500 index also performed poorly, dropping 2% over the past week.

Blain said, "All these factors could lead to a pullback, and this sign can already be felt in the surrounding markets, as people are not falling off a cliff but rolling down a slope."

This pullback could be triggered by various factors: escalating geopolitical tensions, worsening inflation, and unpredictable black swan events. However, Blain predicts that various risks are spreading, and a pullback may occur in October this year.

Blain is avoiding large tech stocks and currently only bullish on "boring, predictable" stocks. He mentioned that he has been buying gold and other commodities, stating, "I am looking at fundamentals, and in times of crisis, there will always be opportunities."

More and more pessimistic forecasters on Wall Street believe that the excitement over artificial intelligence and Fed rate cuts can only push the stock market to its current level, with Blain being one of them.

Strategists from Morgan Stanley, Stifel, and Richard Bernstein Advisors predict a certain degree of pullback in the stock market in the near term, while more extreme forecasters expect a pullback of up to 70%.

Bermuda Triangle in the Stock Market

Blain mentioned that despite the stock market breaking records continuously this year, various unfavorable factors have been accumulating.

Firstly, stock valuations are too high, and the frenzy over artificial intelligence has pushed valuations to extremely high levels. Over the past year, the speculation in artificial intelligence has attracted billions of dollars into the industry, reminiscent of the dot-com bubble burst in the early 21st century when the NASDAQ Composite Index plummeted 78% from its peak to trough.

According to an analysis by Natixis Bank, the weight of tech stocks in the S&P 500 index is currently at its highest level since the early 21st century. Renowned US fund manager John Hussman recently stated that, based on one indicator, the stock market seems to be at its highest level since 1929, when investor enthusiasm peaked, leading to a stock market crash.

Blain mentioned past failed tech trends such as the metaverse and other virtual worlds, stating, "I have been observing large tech companies for 40 years and have seen a series of events unfold." "Everyone thinks this will be the new thing that will make people rich, but it never materializes."

He also highlighted another risk in the stock market, which is interest rates, as borrowing costs seem to remain high for a longer period.

Some optimists still believe that inflation will fall back to the Fed's 2% target and lead to Fed rate cuts. However, Blain pointed out that inflation pressures still exist in the economy and highlighted trends such as deglobalization and supply chain disruptions He predicted that inflation may "stall" at around 3%, and believes that this means interest rates will only decrease slightly, with the Federal Reserve cutting rates by at most one to two percentage points.

He added, "Many people in the financial markets simply do not understand that zero interest rates and ultra-low interest rates are abnormal. I certainly see the possibility of a pullback, as the market is beginning to realize that the extent of the rate cuts will be only superficial."

Furthermore, the last risk he is concerned about is the upcoming presidential election, which will include uncertain factors that could potentially impact the stock market.

Several candidates' economic policies could potentially drive up prices, such as Trump's tax cut proposals. Brian said that these policies could lead to "substantial" inflation and reduce job opportunities in the United States.

He also mentioned that the candidates seem prepared to increase the level of U.S. debt. Higher levels of debt could exacerbate inflation and hinder foreign investors from buying U.S. Treasury bonds, meaning that capital inflows into the U.S. economy will decrease.

He stated, "I think people will say, 'We must start considering hedging trades.' This is not just temporary hedging, but a longer-term strategy. My own guess is that we will not see a market crash, but there will be a significant pullback."