Wall Street Prophet: Bear market may have begun, US stocks may repeat the 1987 flash crash

Source: Jinshi Data

Ed Yardeni, a famous bull in the U.S. stock market known as the prophet of Wall Street, said that the bear market may have begun. "In Trump's world, everything is possible," he said.

Yardeni wrote on Sunday, "We can't rule out the possibility that the bear market started on February 20, the day after the S&P 500 hit a record high."

Yardeni's remarks are worth noting because he has been bullish before and is sometimes one of the most optimistic strategists on Wall Street. As recently as February of this year, he said that the U.S. economy may not experience a recession for a decade. In January, he said that investors are in the so-called "Roaring 2020s."

Before the strategist issued his latest report, the major U.S. stock indexes had just experienced their worst week of performance so far this year. In early trading this week, the sell-off continued.

On Monday, the Nasdaq Composite Index entered a correction range, falling more than 13% from its record high in December last year. The S&P 500 is also fast approaching correction territory, having fallen more than 8% from its Feb. 19 all-time high. A bear market is defined as a 20% or more drop in stock prices that can last for months or even years. That means the recent decline could get worse, according to Yardeni. But for investors with a shopping list, the stock market decline could also offer buying opportunities for some stocks that were "mispriced." "This could be like the 'flash crashes' that happened in 1962 and 1987. The decline could come quickly, and the rebound could be just as quick," Yardeni said. As a result, "this sell-off could present buying opportunities, especially for stocks that were previously overvalued and are now trading lower." His shift in view is due to the erratic nature of Trump's trade policies and early signs of weakness in the economy, which have also highlighted concerns about a recession, defined as two consecutive quarters of economic contraction.

“The problem is that the Trump administration’s rapid-fire series of policy moves are stress-testing the economy, which has proven remarkably resilient so far, but are still raising recession fears,” Yardeni added.