As traders’ optimism wanes over the possibility of further interest rate cuts by the Federal Reserve, with forecasts indicating only one or possibly none in 2024, concerns of a stock market crash akin to the events of 1987 are being raised.
Notably, these warnings come from Ruffer LLP, renowned for its successful track record in predicting and profiting from market crashes.
They even went as far as putting a time constraint on their prediction with Matt Smith, the fund manager saying, ‘It could be within the next three months, which is a time when Fed liquidity is going to be coming out, this huge volatility-selling ecosystem could go reflexively in the other direction.’
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What exactly happened in 1987?
Smith warns that excessive optimism surrounding potential US interest-rate cuts has driven market prices to near-perfection levels, posing liquidity risks reminiscent of Black Monday.
This historical reference points to the abrupt and severe stock market crash of October 19, 1987, marked by record-breaking losses for the S&P 500 and Dow Jones Industrial Average.
Despite ongoing debate about the crash’s causes, Smith draws parallels between the frothy bull market conditions leading up to Black Monday and the current market landscape. Even as the latest US inflation data dampens expectations for further easing, Ruffer LLP maintains one of the most bearish outlooks in the market.
Track record of success for Ruffer LLP
Ruffer has a remarkable track record in navigating market crises. They achieved a 16% return during the 2008 crash, successfully anticipated the 2015 flash crash, accurately predicted the 2018 implosion of XIV (known as Volmaggedon), and capitalized on the 2020 COVID-induced market crash, reaping $2.2 billion in profits.
Their consistent success in these high-stakes bets underscores their expertise and accuracy in forecasting market movements.
Additionally, Ruffer demonstrated their prowess yet again in 2023 by foreseeing the blowup of Silicon Valley Bank, this time leveraging VIX options to their advantage.
With such a track record, it would be wise for investors to heed the advice of this renowned investment institution.
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