The president of sell-side Wall Street firm Yardeni Research believes tensions in the Middle East are increasing the likelihood of a stock market collapse.
In a new Bloomberg interview, Ed Yardeni reiterates his view that the chances of a sharp sell-off in stock markets have diminished. got up to 35% as the conflict in the Middle East continues.
According to Yardeni, the stock market has been resilient lately as investors continue to buy the dips. But he cautions that rising oil prices have historically preceded recessions and bear markets.
“So I think there’s still a lot of buying on the dips. There’s still a lot of wishful thinking. And I’m hopeful that sooner or later that will be done. But I need to see some evidence that that’s the case. And that just doesn’t seem to be the case. So I think we’re still looking at something like a 10% to 15% correction. A bear market of 20% or more. And I don’t think we can just rule that out. because we have a history of seeing that oil shocks tend to cause recessions, which often cause bear markets.
Now we had 2022, where we had a bear market, but no recession. So that is a possible scenario. I don’t think this will be the 1970s again, but it’s starting to look a bit like it.”
In the 1970s, the US became increasingly dependent on foreign oil supplies after domestic production peaked, eventually leading to the 1973 oil crisis and the Great Stagflation. At the time, rising oil prices forced companies to cut production and lay off workers as the prices of goods and services soared, leading to a period of high inflation and high unemployment.
As of this writing, US crude oil (WTI) prices are trading at $92.22 per barrel, up more than 42% since the conflict in Iran began. Meanwhile, the S&P 500 (SPX) is valued at 6,775.79, down about 1.59% over the same period.
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