This Veteran Analyst Hears Echoes of the 1929 Crash in Today’s Stock Market: MW

“Now with the Fed talking about tapering and money supply growth slowing
significantly from 39% y/y in February to only 8% y/y in August, perhaps that is
enough of a ‘tight monetary policy’ to change investor psychology to a more
bearish mood? We will see,” he said in a Monday interview and follow-up comments with MarketWatch.

Wolfenbarger, who spent 22 years as an equity analyst at Allianz Global Investors, said while he’s not a permabear — his newsletter offers strategies for profiting when markets go both ways — investors should heed some warnings signs.

Overbullish sentiment, economic weakness, excessive debt levels and limited policy tools are key ingredients for a market rout worse than that seen in 2008-09, he said, adding that a top for the S&P 500 reached a few weeks ago could have been the start.

One chart he’s watching that predicts future long-term stock returns — a favorite of legendary investor Warren Buffett, the chairman and CEO of Berkshire Hathaway BRK.A, +0.51% BRK.B, +0.50% — shows equities 30% above the prior all-time high seen in the tech bubble peak of 2000.

Wolfenbarger is watching S&P 500 moving averages closely. If the 250-day, currently at 4,020, were to “really break through” that could trip a major drop for stock. His below chart shows the S&P 500 price (black line) with its 250-dma since 1980. The red circles indicate when it fell below the 250-dma and the 250-dma slope was falling.

As for what investors should do — Wolfenbarger advised using exchange-traded funds that actually go up in bear markets, which could be the iShares 20+ Year Treasury Bond ETF TLT, +0.48% or SPDR Gold Shares GLD, +0.19%, though he prefers inverse ETFs such as ProShares UltraShort S&P 500 SDS, -0.23% and the ProShares Short S&P 500 SH, -0.17%.

“I personally think it’s easier for most people to just buy an inverse ETF because it moves the same way as a normal stock and ETF, and the SH went up 89% in the last bear market,” he said, adding that SDS went up 184%.

Wolfenbarger said he has honed his strategies after adhering for years to Buffett’s advice of just buying and holding an S&P 500 index fund.

“But then I started looking at history and you know it took 25 years for the market to get back to the 1929 peak, and I don’t have 25 years,” said Wolfenbarger, who is in his early 50s. “Any given investment can go down 50% to 90% and it can stay down for decades, at least 10 to 20 years.”

Read: Rate fears just another ‘white knuckle moment’ for tech stocks, says this analyst who’s forecasting rebound of at least 10%

The buzz

The trade deficit rose 4.2% to $73.3 billion in August. And the Institute for Supply Management’s services index rose to 61.9 in September, beating forecasts.

The Federal Reserve has asked for an independent review of whether trading activity by some top officials broke the law, a representative for the central bank said.

Facebook FB, +0.10% CEO Mark Zuckerberg apologized for the outage on Monday that took out the website as well as social-media apps WhatsApp and Instagram. The six-hour outage cost him $6 billion personally and wiped $40 billion off market cap.

And former Facebookworker Frances Haugen will testify before a Senate subcommittee, after she said in prepared testimony that the company gave priority to profits over safety.

Read: AMC stock fails to capitalize on a blockbuster weekend, and meme stock traders are miffed

Johnson & Johnson JNJ, -0.29% has amended an FDA emergency-use authorization submission for its COVID-19 booster, with data showing it offers 94% protection against moderate to severe illness.

A jury has ordered electric-car company Tesla TSLA, +0.20% to pay $130 million to a Black former employee over a racially hostile work environment.

Reinsurer Swiss Re SREN, -0.50% said Hurricane Ida may have triggered up to $30 billion in claims.

Farewell to Tobias Levkovich, Citigroup’s beloved and well-respected chief U.S. equity strategist, who died on Oct. 1 after being struck by a car last month. Here’s a prescient call he made in August, as well as an interview he kindly gave MarketWatch in late 2019.

Check out MarketWatch’s new podcast, Best New Ideas in Money, and listen to MarketWatch head of content Jeremy Olshan and economist Stephanie Kelton discuss the next phase of money’s evolution with tech, money and business leaders. Listen here.

The markets

Stocks DJIA, +0.02% SPX, +0.12% COMP, +0.27% are higher mixed bag, while the 10-year Treasury yield TMUBMUSD10Y, 1.525% has moved up 4 basis points to 1.521%, while the dollar DXY, +0.28% is higher. In Asia, the big mover was the Nikkei NIK, -1.05%, which slid 2.1% after Wall Street’s tumble. China markets remain closed for a holiday, and the Hang Seng Index HSI00, +0.33% ended modestly higher. U.S. oil CL00, -2.08% is extending Monday’s big gains that took prices to levels not seen since 2014. Brent BRN00, -0.11% is also on a tear above $82 a barrel.

The charts

A team at RBC led by its head of U.S. equity strategy, Lori Calvasina, took the pulse of investors for September. Among their findings, a very bearish outlook on stocks jumped from 14% in June to 28% in September, “still shy of its 2Q19 high, but a sharp increase nonetheless.”

Elsewhere, most investors see stocks taking a hit even before the first Fed rate increase:

And here’s a look at investors’ preferred sectors going forward in the next year:

Random read

The ancient roots of Halloween, traced to Ireland’s “hellishcaves.”

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