The stock market is “bizarrely” overvalued, and a major correction is imminent, according to Paul Dietrich, the chief investment strategist at B. Riley Wealth.
What Happened: Dietrich, in a conversation with Yahoo Finance On Wednesday, pointed to several indicators in the market that are signaling a collective warning for stocks. The price-to-earnings ratio of the S&P 500 and multiples are at levels reminiscent of the dot-com bubble crash, he said.
“Every single indicator seems to tell us we’re in a historic, historic bubble,” Dietrich said.
“It’s hard to look at that and say that we’re not going to see a major, major correction coming. Now is not the time to be putting new money in the market,” he warned.
The most significant indicator of an impending correction is the movement of “smart money” investors out of the stock market and into safer cash equivalents, Dietrich said. He highlighted recent stock sales by billionaires like Jeff Bezos, Warren Buffett, and the Walton family as a sign that big investors sense an impending market correction.
Despite the uncertainty surrounding the trigger for the stock correction, Dietrich has positioned himself among the most bearish of Wall Street forecasters. He previously predicted a potential 40% stock market crash if the U.S. experiences a mild recession.
Why It Matters: The stock market’s valuation has been a topic of debate among financial experts. In February, hedge fund guru Ray Dalio suggested that the U.S. stock market was not in a bubble, despite significant rallies. He argued that the market did not exhibit typical bubble characteristics.
However, in March, analysts pointed out that the S&P 500 was at the same level as in 1995, raising concerns about a potential bubble. Despite these concerns, Bank of America predicted that the stock market’s long-term bull rally could continue, with the S&P 500 potentially surging by 34% by the end of 2026.
Amid the bubble fears, Wall Street veteran Jeremy Grantham identified four areas of the stock market that he believed were still worth investing in, despite the overall high valuation of the stock market.
In 2024, the S&P 500 rose by 10.66%, while the SPDR S&P 500 ETF Trust SPY yielded returns of 10.69% during the same period.
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