The S&P 500, which has been on a remarkable bull run, might be on the brink of a significant downturn, according to a top strategist.

What Happened: Paul Dietrich, the chief investment strategist at B. Riley Wealth Management, has issued a stark warning about the future of the S&P 500. The warning comes in a commentary titled ‘The Stock Market Bubble Is About to Burst — Look Out!’ Dietrich predicts that the index could plummet by as much as 49% when the next recession hits.

Dietrich’s warning is based on the current overvaluation of stocks, which he believes is “bizarrely overvalued.” He highlighted several concerning indicators, including the S&P 500’s historically high price-to-earnings ratio, unusually low dividend yield, and unrealistic priced-in earnings growth.

“This is how far this bubble has gone,” he said.

“The stock market is basically priced for earnings growth that has only happened 3% in the past, and that percentage has generally happened when the economy was coming out of a severe recession.” 

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He also pointed out that the “Buffett Indicator” is at a 180%-plus reading, suggesting that the US stock market is significantly overvalued in relation to the size of the economy. Dietrich also noted that the recent surge in gold prices indicates that investors are seeking refuge from expensive stocks and a faltering economy.

Despite the recent positive economic indicators, such as a decrease in inflation and steady GDP growth, Dietrich and other top analysts remain convinced that a stock market crash and recession are imminent.

Why It Matters: Dietrich’s warning comes in the wake of other experts’ concerns about the stock market’s future. In February, Dietrich cautioned that the market was being driven by investor emotion and the fear of missing out, and could experience a significant downturn if a recession occurs.

In March, technical analyst Milton Berg also predicted a potential 60% plunge in the S&P 500 amid concerns of an imminent recession.

However, not all experts share these concerns. A survey conducted by the National Association of Business Economics (NABE) in February revealed that only 25% of business economists and analysts foresee a recession in the United States in 2024. The potential downturn is likely to be triggered by external factors, such as a conflict involving China, rather than domestic economic issues like increased interest rates.

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This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.