Commodity Strategist Warns of 50% US Stock Market Drawdown

Commodity strategist Mike McGlone has issued a warning about the potential for a significant market correction in the United States, which could have far-reaching effects on the prices of Bitcoin, oil, and stocks. McGlone's analysis suggests that the current economic environment, marked by elevated S&P 500 vs. GDP and S&P 500 vs. gold ratios, is reminiscent of historical periods that preceded major stock market crashes, such as those in the 1930s, late 1990s, and 2008.

According to McGlone, the "self-correcting mechanism" of the US economy may push back against the tariff war initiated by the Trump administration, leading to market chaos. This pushback could result in a significant reversion in the markets, affecting not only stocks but also commodities like oil, copper, and bonds, as well as Bitcoin and other cryptocurrencies.

McGlone's forecast includes a 50% drawdown in the US stock market, a drop in crude oil prices to $40 per barrel, a decrease in copper prices to $3 per pound, a 3% yield on US 10-year bonds, and a significant decline in Bitcoin's value to $10,000. Most cryptocurrencies could experience a 90% drawdown, while gold is expected to remain an outlier, potentially reaching $4,000 due to its status as a safe-haven asset.

Despite the severity of these predicted drawdowns, McGlone emphasizes that the magnitude of the potential downside moves is "normal" based on historical terms. This perspective underscores the cyclical nature of market corrections and the importance of understanding historical market behavior in assessing current risks.

McGlone's analysis highlights the interconnectedness of global markets and the potential for significant disruptions in the event of a major correction. The elevated stock market cap vs. GDP ratio, both in the US and globally, suggests that the current market conditions are unprecedented in the past century, increasing the likelihood of a substantial reversion.

The analyst's forecast serves as a reminder of the inherent volatility in financial markets and the need for investors to remain vigilant. While the predicted drawdowns may appear severe, they are not unprecedented and are consistent with historical market behavior. Investors should consider these potential risks and adjust their strategies accordingly to navigate the uncertain economic landscape.