Stocks 'Remain Pricey,' Says Top Economist Steve Hanke: 'Multiples Will Come Off As The Recession Starts To Bite'

Noted economist, Steve Hanke, has predicted a recession, a stock market downturn, and inflation falling below 2% by the end of 2024.

What Happened: Hanke, a professor of applied economics at Johns Hopkins University, suggests that the stock market is overvalued and will likely see a decline as the anticipated recession begins to impact, reported Business Insider on Thursday.

“As far as the outlook for stocks goes, they remain pricey, and the multiples will come off as the recession starts to bite,” said Hanke.

The S&P 500 index, after a 24% surge in 2023, is currently trading near an all-time high. Hanke, however, cautions that stocks, usually valued at multiples to company earnings, are expected to drop during a recession due to decreasing multiples and reducing earnings.

Hanke, who served as an economic advisor to Ronald Reagan and was the president of Toronto Trust Argentina in 1995, attributes the recent unstable inflation to alterations in the U.S. money supply rather than supply-chain disruptions or variations in energy and metal prices.

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Along with colleague John Greenwood, Hanke anticipates that headline inflation will dip below the Federal Reserve’s target rate of 2% by the end of 2024. They propose that a 6% annual growth in M2, a broad measure of money supply, would likely keep inflation around the 2% level.

In December, the pair cautioned that the U.S. economy was “running on fumes” and “on schedule to tank” due to a substantial decrease in its money supply since March 2022. Hanke has previously raised alarms about the potential for a market downturn and a recession.

Why It Matters: Hanke’s predictions come at a time when the world's top investors are growing more confident that markets won't be hit by a recession in 2024, with a majority now supporting the likelihood of a "soft landing" for the U.S. economy. Despite the crowded trade, fund managers believe being long on the Mag7 stocks, including Apple Inc. AAPL and Amazon.com Inc. AMZN, is still among the best ways to play this year's expected rate cuts by the Federal Reserve.

However, concerns about a potential recession in 2024 have led some investors to explore alternative investment strategies, such as diversified real estate investments as a hedge against potential economic downturns.

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