Stocks heading into decade-long 'death' zone with losses comparable to when dot-com bubble burst, fund manager says

• A top fund manager warned that the stock market could see little or no return for a decade.

• This is because inflation and interest rates are likely to remain high.

• He said the stock market's recent losses could be comparable to those suffered during the bursting of the Internet bubble and the 2008 crash.

Investors who have been cheering this year's rebound in the stock market should be prepared for it to be short-lived, as the S&P 500 is at risk of poor returns for the next 10-15 years.

Bill Smead thinks he's one of Wall Street's biggest puts, even as the market rebounds 8% in 2024. In a recent note to clients, the founder of Smead Capital Management said this is because stocks appear to be in a speculative bubble, which he has previously warned could send investors' businesses into a "dead ball" era.

Smead said the "dead ball" period will last at least the next decade, ending only when the market's enthusiasm for the most expensive stocks dies down. That process, he said, could lead to the same losses as during the Internet bubble and the Great Financial Crisis, when stocks fell by double digits.

"It's going to be more like the '00-'03 bear market, or more like the '07-'09 bear market," Smead said in an interview with Business Insider." Over the course of 10 years, we'll likely experience two bear markets in full breadth, which will essentially take the money-making out of the S&P 500. You don't want to buy the S&P 500 until it becomes a dirty word."

Smead believes that stubbornly high inflation may be contributing to the losses. According to the latest CPI report released by the U.S. Department of Labor Statistics on Wednesday, the consumer price index has been hotter than expected over the past three months, with prices up 3.8% year-over-year in March.

That makes the economy look as precarious as it did in the 1970s, when runaway inflation sent the stock market into a quagmire, Smead said.

Stubborn inflation raises the risk that the Fed will keep interest rates higher for longer, with some experts such as JPMorgan boss Jamie Dimon warning that rates could eventually rise to 8%.

"It reeks of inflation," Smead said of the economy." We're entering an inflationary era, and that's going to lead to a radical change in what we call the investment climate ...... Where that climate changes, the stock market itself can't do well, because all the money is [there]."

Investors are keen to put cash into AI stocks and the mega-cap leaders of the Magnificent Seven, but Smead has repeatedly warned to stay away from overvalued areas of the market. He has predicted that the most expensive stocks could plummet in value 70%.

"Nobody ever talks about the fact that there is a large portion of growth stocks that have soared in price but underperformed and ended up getting slaughtered," he said in a report last week.

That doesn't mean there aren't opportunities to make money, even in dead-ball market times. Smead's firm remains bullish on "unloved" investments that typically benefit from inflation, such as oil and gas, real estate and gold.

"In the dead-ball era," he said, "we did find places to get hits and score runs." That's where we are now."

Other bearish forecasters on Wall Street are also warning of an imminent correction as valuations reach dizzying heights. Still, the consensus view on Wall Street is relatively optimistic, with nearly half of investors saying they are bullish on the stock market over the next six months, according to the AAII's latest Investor Sentiment Survey.

Read the original article on Business Insider