The “Goldilocks Zone” of the Stock Exchange is in danger of an abrupt end

(Bloomberg) — With stocks hitting all-time highs and traders growing confident of a soft economic landing, the stock market appears to be in a “Goldilocks zone,” according to Mark Spitznagel, founder and chief investment officer of Universa Investments.

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But investors should be wary of second-order effects, such as an economic slowdown that could send the market crashing even if the Federal Reserve cuts interest rates, he said in an interview with Bloomberg Television on Thursday. Spitznagel anticipates a “crash” in global markets by the end of this year, which may be driven by a slowdown in economies.

“When the yield curve inverts and then inverts, the clock starts ticking and that’s when you enter black swan territory,” said Spitznagel, whose firm is advised by Black Swan author Nassim Nicholas Taleb. “Black swans are always lurking, but now we’re in their territory.”

The S&P 500 hit 42 record highs in 2024, boosted by resilient corporate earnings, the Fed’s rate-cutting cycle and expectations that the US economy can avoid a recession. But Spitznagel thinks the Fed’s cut in borrowing costs should worry investors and think more about where stock prices will be next year.

“Gold will go down, cryptocurrencies will go down along with risk assets,” he said, adding that bonds could be a place to hide. He also sees an increase in volatility in the coming months.

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