Stocks look ‘highly vulnerable’ and the economy is likely to enter a yearlong recession, a 30-year market veteran says

Market veteran Jon Wolfenbarger anticipates a severe downturn in stocks and an extended recession in the U.S. Drawing attention to concerning economic indicators, Wolfenbarger points to the Conference Board’s Leading Economic Index, which is declining at a rate typically seen during recessions. The inverted yield curve, a historically accurate predictor of downturns, has remained inverted for an unusually long period, raising alarms. Wolfenbarger notes a 1.29% inversion between the 10-year and three-month Treasury yields, suggesting a prolonged recession, contrary to the Conference Board’s two-quarter prediction.

The strategist predicts a bear market, attributing it to worsening earnings, stretched valuations, and weak January regional Purchasing Manager Indexes and disappointing bank earnings. Despite positive Q4 earnings revisions for tech giants, the S&P 500 faces an 11% downward revision. Wolfenbarger underscores market vulnerability due to overvaluation of Big Tech, causing an “irrational exuberance” reminiscent of the early 2000s Tech Bubble. He cautions investors against underestimating the market downturn potential and the vulnerability of overvalued tech stocks in a recession, emphasizing the risk posed by the strength of a few mega-cap tech stocks.