A veteran market investor has sounded the alarm over the U.S. economy amid Donald Trump’s second term, warning that current conditions bear striking and worrying similarities to the run-up to the devastating 1987 Black Monday stock market crash.
Appearing on Cheryl Casone’s Fox Business show on Tuesday, Bear Traps Report newsletter founder Lawrence McDonald pointed to “diminishing returns” on Trump’s controversial tariff policy and noted how, with bonds, globally, “all the yields are blowing out.” They are both a particular cause for concern, he said.
“And so, for investors watching us right now, the problem is, when interest rates go up, bond prices go down. At some point, bonds become a very interesting alternative to stocks,” he argued. “When bonds start to offer competitive returns relative to stocks, that’s when the risk-reward deteriorates.”
McDonald added, “It’s very similar to the summer of ’87,” a reference to the Black Monday market crash.
But he stopped short of predicting a repeat of the historic collapse.
“I’m not saying we’re going to crash, but historically, when bonds start to threaten stocks at this degree, especially with global rates across the G7 going up, investors watching us right now have to have extreme caution.”
Casone asked McDonald what could be done.
“I mean, I understand the red flashing signals that you’re putting out there, but what is the fix, in your opinion?” she said.
McDonald suggested investors take a page from longtime investor Warren Buffett’s playbook, pointing to his healthy cash reserves, and suggested staying away “from the crowded trade when bonds become this kind of a threat.”