Billionaire Investor Ken Griffin Warns of Recession. Will the Stock Market Crash If He’s Right?
In February, the U.S. and Israel launched airstrikes against Iranian military and leadership targets, prompting Iran to retaliate with missiles and drones across the Middle East. Those retaliatory attacks have disrupted oil shipments through the Strait of Hormuz, a waterway in the Persian Gulf that serves as a transit route for 20% of global oil and liquefied natural gas.
The strait has effectively been closed for over a month, with the number of ships crossing the waterway daily falling to single digits, down from more than 100 before the war. In turn, oil prices have jumped to a multiyear high. Brent crude oil (an international benchmark) topped $127 per barrel in early April, a level last seen in the summer of 2022.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
When the conflict started, the S&P 500 (SNPINDEX: ^GSPC) declined 9% from its high, but the index has since recouped its losses as investors have become increasingly confident in a resolution. However, the stock market’s rebound may in jeopardy. Hedge fund billionaire Ken Griffin believes a global recession would be unavoidable if the Strait of Hormuz remains closed for six to 12 months.
In that scenario, would the stock market could crash? Here’s what investors should know.
Ken Griffin’s opinion carries weight because he runs the most successful hedge fund in the world as measured by net gains, but he is not the notable person to sound a recession warning due to the Iran conflict. In March, Moody’s chief economist Mark Zandi wrote, “If oil prices remain elevated for much longer (weeks and not months) a recession would be difficult to avoid.”
The stock market is a forward-looking reflection of the economy. Investors make decisions based on future expectations for corporate profits, which are impacted by economic variables like gross domestic product (GDP) growth and interest rates. It makes sense that a recession (defined as a significant and widespread decline in economic activity that lasts more than a few months) would be bad news for the stock market.
The U.S. economy has suffered 10 recessions since the S&P 500 was created in March 1957. The following chart shows the benchmark index’s peak-to-trough decline around each of those events.
|
Recession Start Date |
S&P 500’s Peak-to-Trough Decline |
|---|---|
|
August 1957 |
(21%) |
|
April 1960 |
(14%) |
|
December 1969 |
(36%) |
|
November 1973 |
(48%) |
|
January 1980 |
(17%) |
|
July 1981 |
(27%) |
|
July 1990 |
(20%) |
|
March 2001 |
(49%) |
|
December 2007 |
(57%) |
|
February 2020 |
(34%) |
|
Average |
(32%) |
Data source: Goldman Sachs Research.
