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Stocks are at all-time highs, ​but analyst warns of ‘supervolcano’ set to erupt

“We’re going to see the inevitable correction, I just wish I could say I knew when”

(National SentinelWall Street: Stocks on Wall Street continue to set records and many believe that has a lot to do with President Donald J. Trump’s economic policies. But one analyst is now warning of a “supervolcano” bubbling beneath a seemingly “beautiful” market and its set to explode.

As reported by CNBC:

Warning: A correction in the market is “inevitable” and there are three key factors that could spark chaos on Wall Street, according to James Advantage Fund president Barry James.

The investor likened the market to Yellowstone National Park’s famous supervolcano, which many believe is close to eruption. Stocks continued to hit record highs on Friday, with the Dow Jones Industrial Average setting its 8th consecutive all-time high.

“Even though [the market] looks beautiful—setting new highs, good momentum and earnings have been coming in strong, [there are] things to worry about,” James said recently on CNBC’s “Futures Now.”

Aside from the rise of passive investing, which James says is creating a “herd mentality” among investors, he also believed that the earnings picture isn’t telling the whole story.

“In the 18 months ending in June, we saw companies that had no earnings, they were losing money, outperform those that were making money,” he said, noting that many stocks’ performances this year may not be true reflections of their earnings.

The current valuation of stocks, however, is what James is worried about most.

“We went back to 1994 and researched team data that said [that if we look at cyclically adjusted P/E, one out of two times] the market was down in the next 12 months, and about one out of three times it was down more than 10 percent,” said James, echoing a report recently from Goldman Sachs that hinted the markets could be oversold.

“It doesn’t mean that we’ll see a volcanic eruption in the immediate future, and these market peaks take a long time, but we’re definitely in the latter stages of this market advance,” he said. “We’re going to see the inevitable correction, I just wish I could say I knew when.”

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