A bear market that will 'make its mark' is looming ahead: Robert Prechter

Published November 01, 2017
FOXBusiness

Despite praise from the Trump administration that the president’s business-friendly policies are largely responsible for a record-breaking run on the stock market, the real cause behind the booming economy may in fact be the positive social mood and the generally increased levels of optimism in society.

World-renowned economist Robert Prechter, author of “Socionomic Theory of Finance,” argued that it’s not outside policies -- like Trump’s impending decision on who to nominate as the chair of the Federal Reserve, or the GOP’s promise of passing the largest tax cuts in 30 years -- that affect the markets.

“The market contains its own messages, and I think it moves on waves of social mood,” Prechter told FOX Business’ Neil Cavuto. “They don’t just affect the stock market. Eventually, they affect the direction of the overall economy, they affect the tone of popular culture, and ultimately, they affect politics: who’s going to get elected and whether people are fighting wars, or you’re genuinely in a time of peace.”

Some economic experts have attributed the market’s rise to President Trump’s proposed tax plan, namely his decision to reduce the corporate tax rate from 35% to 20%. But Prechter said during an interview on “Cavuto: Coast to Coast” that tax cuts, and the impending appointment of Trump’s purported new Fed Chair Jerome Powell, have little effect on the markets.

Prechter pointed to the Great Recession in 2008, during which the Fed attempted to stymie the economic decline by reacting with unlimited credit, bailouts and a large cut to interest rates. Those efforts mostly failed to stop the worst global recession since the Great Depression.

“Because I think actually these waves of social mood, including markets, are pushing the Fed around a lot more than the Fed is pushing any markets around,” he said.

On Wednesday, even in light of the terror attack in New York City on Tuesday that left eight dead and multiple injured, U.S. stock indices all hit intraday all-time highs. The S&P 500 is on pace for its 50th record close since Trump took office.

The market is registering a major peak right now, Prechter said -- which means the economy may be entering a bear market similar to that in 1929 and 1966, both years that included major market crashes. Prechter declined to speculate at what rate he thought the S&P would fall but suggested it would be higher than 20%.

“I think we’re going to enter a bear market that people are going to remember for a long period of time,” he said. “I think it’s likely to be one that will make its mark on the charts.”