Called for reducing tech stocks at the end of last year! Wall Street analysts raise the probability of a stock market crash this year to 35%

As tensions in the Middle East escalate rapidly, energy and financial markets continue to fluctuate. Bloomberg quotes senior Wall Street strategist Ed Yardeni warning that if the Iran conflict persists and pushes oil prices higher, intensifying inflationary pressures, the risk of a sharp decline or even a crash in the U.S. stock market this year is increasing. He emphasizes that the market is not only facing energy price shocks but also needs to consider the Federal Reserve’s interest rate policies and economic outlook uncertainties.

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Middle East conflict drives up oil prices, Wall Street analysts raise the risk of a stock market crash

Senior market analyst Ed Yardeni notes in his report that, amid escalating Iran tensions and soaring energy prices, he has increased the probability of a market meltdown in the U.S. stock market this year from 20% to 35%. At the same time, he has reduced the likelihood of a “meltup” driven by investor sentiment from 20% to 5%.

Iran war weakens investor confidence, U.S. stocks begin to decline

He states that this adjustment mainly reflects the impact of energy prices on the economy. As oil prices temporarily surpass $110 per barrel, markets are beginning to worry that ongoing Middle East conflicts could continue to drive up energy costs and hinder global economic growth.

That said, Yardeni still predicts a 60% chance of a “Roaring 2020s” economic growth scenario this year, but he also warns, “If investors start to expect stagflation, the likelihood of a bear market will increase.”

It is known that Yardeni’s past market forecasts have been quite accurate. In December last year, he recommended reducing holdings in tech stocks led by the “Big Seven” U.S. tech giants.

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Oil price shocks inflation expectations, Fed faces dilemma

Rising energy prices are rapidly changing market expectations for monetary policy. Adam Kobeissi, founder of Kobeissi Letter, points out that if oil prices remain at current levels, U.S. CPI inflation could rise to 3.2%. If oil prices reach $110 or even $130 per barrel, inflation could approach 3.5% to 3.9%.

This suggests that the Federal Reserve may be forced to delay interest rate cuts. As Yardeni warns, if oil shocks spread, the Fed’s dual mandate will be challenged:

Currently, the U.S. economy and stock market are at a crossroads. If the oil supply crisis continues, the Fed will face a dilemma of rising inflation and increasing unemployment.

Peter Schiff and Michael Burry worry about a recession

Regarding the ultimate impact of rising oil prices, economist Peter Schiff believes that high oil prices may not directly cause inflation but could first trigger a recession. Subsequently, government and central bank stimulus policies might lead to rising prices. This scenario could result in the market facing both economic slowdown and inflationary pressures simultaneously.

Meanwhile, hedge fund manager and short-selling pioneer Michael Burry states, “President Trump may have put the world in unprecedented danger. If the stock market declines again, it will be his fatal blow.”

Analysts: Bull market memories cause investors to overlook crisis risks

Additionally, Stansberry Research analyst Ross Hendricks is concerned that the market underestimates risks. He emphasizes that the nearly uninterrupted bull market over the past 15 years has deeply influenced investor psychology.

Hendricks believes that every market correction in recent years has been quickly absorbed by capital inflows, and macro crises are often swiftly resolved through monetary easing or policy stimulus. This has led the current generation of investors to become accustomed to “buying the dip.” Once a true systemic crisis occurs, market participants may be unprepared for more severe volatility.

This article first appeared at Chain News ABMedia, which last year called for reducing holdings in tech stocks and raised the probability of a U.S. stock market crash this year to 35%.