As recession fears mount on Wall Street and inflation remains well above the Fed’s 2% target, some of the top commentators in markets, business, and economics have been sounding off on just how bad they think the next downturn might be — and how far stocks may have to fall.
The stock market cratered from 2008-2009, with the Dow Jones Industrial Average ending at a low of 6,594 in March 2009, down more than 50% from its peak before the recession. While the Great Recession was likely a once in generation confluence of events, the next economic downturn doesn’t have to be such an outlier to spark a massive decline in the stock market, and there is a lot that’s already making investors quite nervous.
For one, the US central bank is poised to keep hiking rates until “the job is done,” Fed Chair Jerome Powell said, indicating that the Fed could stomach a recession if it means prices come down from multi-decade highs. Some predictions say the Fed won’t pivot until the end of next year, meaning more pain for stocks and economic uncertainty to come.
So far in 2022, the S&P 500 has fallen over 20%, and Credit Suisse briefly shook markets on fears of collapse, setting off a flurry of panicked comparisons to the Lehman Brothers bankruptcy that kicked off the Great Recession.
US bonds, meanwhile, are also showing signs of stress. The 2-year and 10-year Treasury yields remain steeply inverted, and a growing chorus of experts has been warning of dysfunction in the Treasuries market that could prove to be a systemic risk.
With warning signs piling up, here’s what five experts have to say about the next recession and what’s in store for the stock market.
Nouriel Roubini, professor emeritus of economics at the Stern School of Business
Roubini, who earned the nickname “Dr. Doom” as one of the experts to call the Great Recession, warned that an even more severe downturn could be in store in the US, which would combine features of 70s stagflation and the ’08 debt crisis to usher in a Frankenstein-style macro storm.
The economist predicted that inflation will remain too high for the Fed to contain, and cause central bankers to “wimp out” on hiking rates. Stagflation and a harrowing recession could ensue, and high debt balances from financial institutions could lead to a market crash, Roubini said, pointing to the recent trouble at Credit Suisse as an omen.
“This is just the beginning of that pain,” Roubini said of a potential repeat of the 2008 recession. “Wait until it’s real pain.”
In his view, stocks could fall as much as 40% from current levels – nearly on par with the freefall of 2008-2009.
David Rosenberg, economist and chief of Rosenberg Research
“I feel like I am reliving the summer of 2008,” Rosenberg said in an op-ed for MarketWatch in May, warning that the S&P 500 could tumble another 17% before revising that upwards to a 27% fall this month.
“The stock market is following a similar pattern of a recessionary bear market,” pointing to 2008 when stocks fell 17%, briefly recovered, and then plunged 40% as the recession unfolded.
In his view, the current market rout hasn’t found a bottom yet.
“You ain’t seen nothing yet. All the bad stuff is ahead of us for because of the lags. Next year is going to be the year where we get the financial spasms.”
Jamie Dimon, chief executive of JPMorgan
Dimon spooked investors in a recent prediction that the US would enter a recession in the next six to nine months and cause stocks to fall “an easy 20%.” But that crash won’t be quite as severe as 2008 was, he said in an interview with CNBC.
“The US economy is actually still doing well. Consumers have money, they’re spending 10% more than last year, their balance sheets are in great shape. Yes, debt’s gone up a little bit, but not near pre-COVID levels. Therefore, even we if we go into a recession, they’re going to be in much better shape than 2008 and 2009. Companies are in good shape. Credit is very good,” Dimon said.
“The Big Short” investor, Michael Burry
Burry, who’s most well known for his bet against the US housing market before the Great Recession, set off alarms on Twitter when he suggested an incoming crash could be even worse.
“Today I wondered aloud if this could be worse than 2008. What interest rates are doing, exchange rates globally, central banks seem reaction an in CYA mode,” he said in a since deleted tweet, referring to the acronym “cover your ass.”
Burry has been a frequent doomsayer, firing off dire tweets and then often deleting them. He’s compared the current decline in stocks to the onset of the dot-com crash and said he thinks the market has much further to fall.
Mohamed El-Erian, chief economic adviser of Allianz
An incoming recession shouldn’t be as severe as 2008, top economist Mohamed El-Erian said – but that’s assuming the Fed can avoid more policy errors.
The famed economist has been a loud critic of the Fed’s delayed response to inflation, which has prompted an aggressive stream of rate hikes this year from central bankers. The Fed’s moves could overtighten the economy and potentially set off a “damaging recession.”
He’s voiced concerns about financial stability, warning markets that the Fed could “break something” on the way to reducing inflation.
“There’s concern that this front-loading of rate hikes – and [the Fed is] massively front-loading – will break something in the financial system. And if the Fed does slow, it’s because we have financial stability concerns,” El-Erian said, urging investors to prepare themselves for “unsettling volatility.”
