Ed Yardeni, the president of Yardeni Research, expressed his belief that the ongoing tensions in the Middle East are increasing the likelihood of a stock market meltdown.
In a recent interview with Bloomberg, Yardeni reiterated his assessment that the probability of a significant stock market decline has risen to 35% due to the prolonged conflict in the Middle East.
Despite the recent resilience of the stock market, with investors continuing to buy on dips, Yardeni cautioned that historically, rising oil prices have often preceded recessions and bear markets.
“I still see a considerable amount of optimism in buying on the dips. However, I am cautiously optimistic that a resolution will be reached sooner rather than later. Nonetheless, until I see concrete evidence of that, I believe we are potentially looking at a correction of 10% to 15%, with a bear market defined as a decline of 20% or more. Given the historical correlation between oil shocks, recessions, and bear markets, we cannot discount that possibility.
While the scenario in 2022 saw a bear market without a recession, it is not impossible. I do not anticipate a repeat of the 1970s, but the current situation is starting to bear some resemblance to that era.”
During the 1970s, the United States faced challenges as domestic oil production peaked, leading to the 1973 oil crisis and the Great Stagflation. The surge in oil prices resulted in production cuts, layoffs, inflation, and high unemployment rates.
As of the time of writing, the US Crude Oil Spot (WTI) is trading at $92.22 per barrel, marking a 42% increase since the onset of the conflict in Iran. In contrast, the S&P 500 (SPX) stands at 6,775.79, reflecting a 1.59% decrease over the same period.
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