Gary Shilling Is Still Waiting for Investors to 'Puke'

What You Need to Know

Economist Gary Shilling says that the bear market likely isn’t over.
He also says that a recession is already underway.
Shilling doubled down on his nine investment strategies from the past year.

Investors haven’t reached their “puke point” yet, which likely means the bear market isn’t over, economist and investment advisor A. Gary Shilling suggested today in his monthly Insight newsletter, repeating a theme he’s discussed for months.

“The bear market will no doubt persist until investors reach the ‘puke point,’ regurgitate their last equity and swear never to buy another,” said Shilling, who believes a recession is underway. “Then selling will be exhausted, leaving only potential buyers.”

He cited current investor bullishness — especially individual stockholders’ optimism — as a red flag for equities.

“An Investors Intelligence survey recently jumped from 40.8% to 48.6%, the highest bullish reading since February,” Shilling wrote. “Individual investors bought $78 billion in stocks and exchange-traded funds in the first quarter, near the $80 billion recorded in the first quarters of 2021 and 2022. And that’s with the average individual investor’s brokerage portfolio down 27% from the November 2021 peak.”

Except for energy, stocks across the board have fallen in this bear market, including defensive stocks such as utilities, consumer staples and health care, he said, adding, “Despite declines, equities are still very expensive.” Speculative investments like cryptocurrencies and special-purpose acquisition companies have evaporated, Shilling said.

And energy stocks may not continue their bear market rise, with Western restraints on Russian oil exports and global economic weakness depressing crude oil prices, Shilling wrote.

“We continue to believe that as the global recession deepens, the second leg of the bear market in stocks, driven by falling corporate sales and earnings, will unfold. The first leg, propelled by Fed tightening, has cut the S&P 500 index 13% from its Jan. 3, 2022, top,” he wrote.

“That index would have to drop another 31% from here to reach our long-held total decline target of 40%. That would be equal to the 40% total fall on average in previous post-World War II recessions,” he said.