The market is on the brink of unprecedented crash, warns veteran financial strategist

The market is on the brink of a crash that could eclipse the dot-com bust, according to Paul Dietrich, a veteran strategist who accurately called the 2008 financial crisis.

In a recent note to clients, Dietrich said rising inflation, stock-market volatility, and the record rally in gold prices foretell a major downturn in the foreseeable future.

“The economy and the stock market have never seen anything like this in history,” Dietrich wrote. “Everything reminds me of the Dot-com bubble in 2001-2002.”

During the Dot-com bubble and subsequent crash, the technology-heavy Nasdaq plunged by a whopping 77% from its peak. It would take years for the stock market to recover.

Dietrich said the U.S. would already be in a recession if the government hadn’t printed trillions of dollars to prop up the economy.

At some point, though, all that money printing will have to stop because it’s feeding “unsustainable” budget deficits. “When it does, the effect will be brutal for jobs, the economy, and the global stock markets,” he said.

As Creditnews reported, federal debt is now almost as big as the economy's entire output (GDP).

Meanwhile, the U.S. government spent a record $658 billion to service that debt—the largest amount ever spent on interest payments, which exceeds even military spending.

Although the U.S. economy has avoided back-to-back quarters of negative growth (technical recession definition), there’s evidence that the slowdown is already here.

The economy loses momentum, but rate cuts are unlikely

After a surprisingly strong 2023, the wind went out of the economy's sails at the start of 2024.

In the first quarter, GDP growth fell by more than half and inflation nearly doubled—marking one of the worst outcomes imaginable for policymakers.

The slowdown in GDP, driven mainly by lower consumer spending, was supposed to tame inflation. But high shelter and gasoline costs more than offset weaker spending.

The result was the worst of both worlds: low economic growth and high inflation.

“The situation our economy has been put in is confounding,” said Jim Iuorio, a managing director at TJM Institutional Services.

In Iuorio’s view, this is happening because the Fed and federal government are pulling the economy in opposite directions.

On the one hand, the Fed has been trying to cool inflation by keeping rates higher. On the other hand, Capitol Hill continues to spur inflation through reckless fiscal spending.

This bizarre scenario means Americans probably won’t benefit from rate cuts this year.

“If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach,” said Olu Sonola, head of U.S. economic research at Fitch.