Will the stock market crash? Tavi Costa predicts another extreme move

Prominent hedge fund manager, Tavi Costa, has an answer for those wondering if the U.S. stock market will crash even further than it already has in 2022.

Costa, who manages billions of dollars for global macro powerhouse, Crescat Capital, believes the answer is yes.

He predicts the U.S. stock market will see another extreme “flush”, and says his money is where his mouth is.

“We are short equity markets in the U.S., we are short most of the FAANG stocks, we’ve been increasing our shorts recently as well, we’ve been short the junk bond market because we think credit spreads are yet to blow up,” he said in a recent investor presentation.

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How far will the stock market fall?

So far in 2022 the S&P 500 has already lost around one quarter of its value.

But, Costa predicts a further decline of around 40% in the S&P 500 and a similar fall in the NASDAQ.

“It’s about a 40% decline from here if we’re going to go to the March 2020 low, and I do think we’re going to go there.

“We haven’t seen too much of a dysfunctional market so far, yes we’ve had the withdrawal of liquidity, the dollar move, interest rates increasing – everything has been pointing to a very damaging global economy.

“But we haven’t yet seen the real flush in equity markets, we haven’t seen credit spreads really blow out, we haven’t seen a dysfunctional treasury market like we’ve had with gilts and even currency markets like the Japanese yen.

“I think we’ll see that (in the U.S.)… That’s what it’s going to take for the Fed to pivot – a dysfunctional, disorderly selloff.”

Will the stock market crash?
Image from Crescat Capital