Dan Morehead Predicts a Potential 23% Fall in S&P 500
According to Dan Morehead, Founder and Managing Partner of Pantera Capital, the S&P 500 could experience a significant decline of 23%. Morehead is known for his accurate predictions and previously forecasted the climb of Federal funds rates and the 10-year yield, which came true. He highlighted the current wage inflation, running twice the Federal Reserve’s target, and ongoing labor strikes as evidence of economic pressures requiring further action from the Fed.
Alternative Perspective on Stock Market Valuations
Morehead discussed stock market valuations and introduced an alternative perspective by inverting the Price/Earnings (P/E) ratio to determine the earnings yield on equities. He noted that the earnings yield has decreased along with declining yields across various asset classes. Traditionally, investors require an equity risk premium to justify choosing equities over government bonds, but this relationship has inverted at times due to long-term yield rallies.
Potential Overvaluation of Equities
Equities have been relatively inexpensive compared to bonds for the past twelve years, with their earnings yield exceeding bond yields by more than 4.00%. However, with bonds now considered fair value, equities appear significantly overvalued as their earnings yield falls below that of treasuries. Morehead referred to historical data and predicted a potential 23% decrease in equities if the 10-year treasury yield reaches 5.00%.
Implications for Blockchain Assets
In terms of blockchain assets, Morehead discussed conversations with asset allocators who are considering investment options. He advised against investing in bonds due to risks and pointed out that real estate is descending from all-time highs while equities are overvalued. This creates an opportunity for alternative asset classes like real commodities and blockchain assets. Morehead urged institutions to increase their exposure to blockchain assets, suggesting a target of a few percentage points.
Hot Take: Dan Morehead Urges Institutions to Increase Exposure to Blockchain Assets
Dan Morehead, Founder of Pantera Capital, has predicted a potential 23% fall in the S&P 500 and highlighted the overvaluation of equities. In this economic climate, he advises institutions to consider alternative asset classes like blockchain assets, which have significant growth potential. Morehead emphasizes the trillion-dollar scale of the blockchain asset class and the current lack of institutional exposure to it. He urges institutions to increase their exposure by allocating a few percentage points to blockchain assets. By diversifying their portfolios in this way, institutions can take advantage of the opportunities presented by the blockchain industry.
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