Michael Pento: Stocks & Home Prices To Fall 40-50% As Liquidity Dries Up?

Could it really get that bad in 2025? If so, how can we safeguard our wealth?

When today's guest was last on this program back in December, he warned that after blockbuster double-digit returns in 2023 and 2024, stocks were likely to have a tougher time this year.

Well, so far, with the S&P down YTD for 2025, that prediction is proving prescient.

So, where does he see the market headed from here?

To find out, we're fortunate today to talk with money manager Michael Pento, president of Pento Portfolio Strategies.

He maintains a 20-point model that guides his portfolio allocation, and today we'll hear what it's advising him to do right now.

Spoiler alert: it is telling him we are at a dangerously high risk of a major downwards correction in both stock & home prices as the year progresses.

To hear Michael’s energetic arguments why, click here or on the video below:

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Adam’s Notes: Michael Pento (recorded 3.3.25)

EXECUTIVE SUMMARY:

• Michael's forecast from December 2024 that stocks would struggle in 2025 has been accurate so far, with the S&P 500 slightly down year-to-date. He attributes this to the market being priced for absolute perfection, meaning valuations are historically stretched. The total market capitalization of equities relative to GDP is over 200%, price-to-sales ratios are at 3 (double their historical mean of 1.5), and the S&P 500 is trading at 22 times projected 2025 earnings, which assumes an optimistic 13% growth, an unlikely scenario in a slowing economy. These stretched valuations indicate that the risk-reward profile is skewed heavily to the downside.

• Michael highlights the significant short-term economic disruptions caused by tariffs, which he describes as an indirect tax on consumers and businesses. The U.S. is set to impose 25% tariffs on imports from Canada and Mexico, with additional tariffs on China and Europe slated for later in the year. These policies, while aimed at rebalancing trade deficits and protecting U.S. manufacturing, contribute to economic contraction. The Atlanta Fed’s GDPNow model recently turned negative, primarily due to worsening net exports. Combined with a shrinking labor force due to tightened immigration policies, these factors are expected to weigh heavily on GDP growth.

• The economy’s resilience is being sustained primarily by the top 10% of earners, who now account for 50% of all consumer spending, up from 36% two decades ago. Their wealth is largely tied to asset bubbles in the stock and housing markets, both of which Michael believes are unsustainable. He forecasts a 50% drop in stock prices based on historical mean reversion trends and a potential 40% decline in home prices. Key warning signs include