Market Crash Warning: Billionaires Are Selling Stocks

• Fears of a market crash have kept investors on their toes. Several prominent fund managers have been warning about an impending crash. So far, U.S. stock markets have shown a lot of resilience.
• Billionaires, whose portfolios are handled by wealth management giant UBS, have started selling stocks. They made strong gains from the market’s recovery in the second quarter.

Many investors have been apprehensive about a stock market crash. Jim Rogers, David Tepper, and Mark Cuban are some of the fund managers who have been warning of an impending crash. While there have been some short-term pullbacks in markets, we have not seen the market crash as fund managers expected. 

UBS manages billionaire investors’ portfolios. According to UBS, billionaires plan to sell stocks after the sharp rally. 

Josef Stadler, UBS’s head of global family offices, said that billionaire investors, who invested into the markets with borrowed money amid the first-quarter crash, want to cash out. Speaking with Reuters, Stadler said, “They bought, for example, U.S. equities, but they didn’t buy $50 million. They bought a billion-plus of those equities to rebalance. And they made a lot of money.”

Billionaires looking to cash out from stock markets is a subtle warning that they expect a market crash. U.S. tech and growth stocks look especially vulnerable after the sharp gains. The July Bank of America global fund manager survey showed that 74 percent of individuals surveyed said that U.S. tech and growth stocks are the most crowded trade. The amount is the highest percentage ever of fund managers calling a trade 'crowded.'

The value investment strategy has underperformed growth over the last decade. Notably, the gap has widened more in 2020. Legendary value investor Warren Buffett is trailing the S&P 500 this year. He did not capitalize on the U.S. stock market crash in the first quarter. The mistake has impacted Berkshire Hathaway’s 2020 returns. Before the crash in the first quarter of 2020, Buffett also missed out on the crash in the fourth quarter of 2018.

The divergence between economic realities and stock markets has not been this wide for awhile. Although markets bank on a swift V-shaped recovery from the COVID-19 pandemic, that might not be the case due to the damage in the global economy. Many jobs might not return. On a global level, there are several macro risks that markets have been ignoring including deteriorating U.S.-China relations.

The upcoming U.S. presidential election is another risk factor. Some observers are concerned that a Joe Biden victory could lead to a market crash. Over the last three months, market crash proponents’ predictions have not materialized. 

Will the market crash ever come? A market crash will likely come at a time when we least expect it. The consensus views on markets have been wrong over the last three years.