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| By Nilus Mattive |
For the last couple of years, I’ve been the resident worrywart at Weiss Ratings.
And in just a minute, I’ll give you several reasons why I still believe the S&P 500 could drop as low as 4,000.
But first, let me tell you what scares me the most right now …
Consensus.
Absolute, 100%-certain consensus.
Read the following three paragraphs from a Dec. 29 Bloomberg article …
“At the big banks and the boutique investment shops, an optimistic consensus has taken hold: The US stock market will rally in 2026 for a fourth straight year, marking the longest winning streak in nearly two decades.
“There’s plenty of angst about the risks to the bull run that’s pushed the S&P 500 Index up some 90% since its October 2022 low. The artificial-intelligence boom could turn to bust. The economy — and the Federal Reserve’s interest-rate decisions — could defy expectations. And President Donald Trump’s second year could bring even more unanticipated shocks than his first.
“But after three years when the equity market’s rip-roaring run made a mockery of any bearish calls, sell-side strategists are marching in lockstep optimism, with the average year-end S&P 500 forecast implying another 9% gain next year. Not a single one of the 21 prognosticators surveyed by Bloomberg News is predicting a decline.”
Hey, they might as well just ask Alfred E. Neuman and make it an even 22!
Four straight years of gains wouldn’t be unprecedented.
For example, it happened from 1995 through 1999 … an extended blow-off top of accommodative monetary policy and internet-driven irrational exuberance.
But it’s probably worth considering what happened right after that, too!
So, unlike those 21 analysts, or Mr. Neuman, I worry.
As I showed you as recently as two weeks ago, stocks are currently trading at their highest valuations IN HISTORY.
And signs of risk-taking are everywhere … from stories about day-trading truck drivers to a massive boom in so-called prediction markets, which are really just virtual casinos where you can bet on almost anything you like.
When I take those two factors together — stretched valuations plus a risk-on mindset — and I layer them on top of very real underlying risks, I see the potential for a major market crash at any time in 2026.
Which is why I just reiterated a downside target for the S&P 500 of 4,000 in the January issue of Safe Money Report.
That would represent about a 41% drop from the index’s closing level on Dec. 31, 2025.
Sound impossible?
As I also showed you a couple weeks ago, the market has been cut in half (or more) at least five times before. And it has dropped anywhere from 20% to 40% on ten other occasions.
My caveat, as always, is that I don’t know the timing or the cause.
I can only give you possible triggers. Here are two big ones …
#1. China.
In last year’s January issue of Safe Money Report, I outlined four concerns I had going into 2025.
- The possibility of more inflation (yes),
- Record government debt (yes),
- Increasing antagonism from China (yes)
- And the possibility of avian flu jumping into the human population (labeled “least likely” and, fortunately, it hasn’t happened in any major way).
All of these are still in play to at least some degree as we head into yet another year.
But I would actually bump the China situation up toward the top of the list now.
Between ongoing trade spats … export controls … and their latest military exercises aimed at Taiwan, the situation feels like a powder keg just waiting to explode.
It’s not accurate to call it a black swan because we all see it plain as day.
It’s just that nobody wants to believe it will get to the point of guns getting drawn.
Let’s hope not, but also keep in mind that China itself has a public goal of being able to militarily take Taiwan by 2027.
In its own words, it wants to be ready for a “strategic decisive victory.”
They see Russia going after pieces of Ukraine.
They see the U.S. taking actions all over the world.
Why WOULDN’T they see all that and secure what they already consider theirs?
#2. Central bank actions.
Outside of a major (even bigger) geopolitical blowup, I think central bank actions have the highest likelihood of upsetting the market’s apple cart.
You can read this article I wrote about tension at the Fed and this article I wrote about the Bank of Japan’s latest interest rate actions for more background.
But suffice it to say, euphoric markets require lots of easy-money fuel to keep going.
So, risk-on assets are extremely sensitive to any policy missteps or unanticipated actions.
We should also keep in mind that many other central banks continue to diversify away from U.S. dollars and dollar-denominated assets.
That is another major theme that I will continue exploring with you in the future because it has huge implications for all of us (and our portfolios).
Bottom line?
I think you would have to be absolutely crazy to just keep rolling the dice on risky assets and figuring it will all work out.
Yet, that’s precisely what most people are doing.
They’ll be fine if they are quick to the exits when things turn south.
But that’s not how I recommend playing it.
Instead, I suggest avoiding the situation entirely — earning stable returns year in and year out from a full list of different assets and investments.
Those include things like dividend-paying stocks … various types of bonds … as well as precious metals and related stocks.
Best wishes,
Nilus Mattive
P.S. Speaking of the last recommended asset, your resource expert Sean Brodrick just finished up his latest gold forecast.
And it’s unlike anything he’s seen before. Find out what the Golden Paradox is here.
