Stock market could plunge 50%, according to hedge fund manager

Black-swan investor Mark Spitznagel has issued a stark warning about an impending historic sell-off in the stock market. 

Despite recent steady gains fueled by the frenzy over artificial intelligence (AI), Spitznagel believes investors are becoming dangerously complacent. 

In an interview with The Wall Street Journal on July 19, he described the ongoing rally as the “greatest bubble in human history.”

Spitznagel draws parallels between the current market situation and the dot-com bubble of the late 1990s. 

Exuberant investors then heavily invested in tech stocks until the bubble burst, leading to a significant crash in the Nasdaq in 2000. 

He argues that the present bubble is even more severe, exacerbated by the government’s $34 trillion debt, which would complicate the Federal Reserve’s efforts to mitigate a recession.

U.S. National debt in the previous 100 years. Source: FiscalData

Despite his bearish outlook, Spitznagel anticipates that the market rally could persist for several more months as inflation decreases and the Fed eases monetary policy. 

However, he warns that stocks could lose over half their value in a subsequent sell-off. He described the current market situation as a “mega-tinderbox-time bomb,” indicating that a significant downturn is imminent.

“I think we’re on the way to something really, really bad — but of course, I’d say that,” Spitznagel said.

Spitznagel’s Universa Investments fund, which bets on “black swan” events, has previously profited during major market disruptions, including the 2008 financial crisis, the 2015 flash crash, and the onset of the COVID-19 pandemic in 2020. 

Although he has been warning of a crash since January 2023, he now sees a clearer timeline, suggesting that a recession could occur before the end of the year.