Should US Stock Market Crash Proponents Admit Defeat?

  • Several leading fund managers have been forecasting a US stock market crash. However, the prophecy has turned out to be an illusion.
  • On Tuesday, the S&P 500 crossed 3,000 in intraday trade. The Nasdaq Composite Index is green for the year. Is it time for bears to accept defeat?

US stock market crash

Over the last few months, several fund managers warned about a US stock market crash. Mark Cuban, David Tepper, and Stanley Druckenmiller warned about overvaluation. They see US stock markets running ahead of the fundamentals amid the recent rally. Jeffrey Gundlach and Paul Tudor Jones warned about a double bottom, which would mean markets testing their March 23 lows.

S&P 500 crossed 3,000

Meanwhile, the prophecy of a US stock market crash has turned out to be an illusion. Led by strong gains in tech and growth stocks, the Nasdaq Composite Index (NASDAQ:QQQ) is positive for the year. The S&P 500 (NYSEARCA:SPY) has fallen only 7.5% for the year. The S&P 500 has rebounded 36.5% from its March 23 lows. In Tuesday’s trade, SPY moved above the 3,000 level intraday for the first time since early March. However, SPY pulled back and closed below the 3,000 level.

For the S&P 500, the 200-day moving average has been a key resistance level. The level is close to the 3,000 level. While the S&P 500 crossed the 200-day moving average in intraday on Tuesday, it didn’t close above that level. However, US stock market crash proponents seem to be losing their bets.

Why US stock markets aren’t crashing

Hedge funds, asset managers, HNIs, retail investors, and almost everyone expects US stock markets to crash. However, the consensus views have been wrong over the last three years. In 2018, analysts expected strong returns, while US stock markets closed in the red. Last year, most analysts predicted a US stock market crash. Eventually, they reached all-time highs. For 2020, before the pandemic, the consensus view was a flat market. After the rally in April, the consensus view is that this is a typical bear market rally that will soon fizzle away. However, none of these consensus views held true.

Central banks and governments are pumping liquidity

The prophecy of the US stock market crash wasn’t flawed. There’s a lot of uncertainty about economic recovery. With the social distancing norms, the economic activity might not reach pre-pandemic levels anytime soon. Central banks and the government stimulus have overridden weak fundamentals.

While a vaccine for the deadly virus would help bring normalcy, we aren’t there yet. Equity markets are pricing in a very high probability of an early vaccine. We’ll have to wait and see what happens.