US equity markets are flashing warning signs, according to chief market strategist Chris Watling. Watling, also chief executive of London-based Longview Economics, expects stocks to fall into a bear market over the next three to six months thanks to lofty valuations driven further since September last year. The S&P 500 traded at 3,985 on Wednesday morning at a price-to-earnings ratio of nearly 20x even as the US central bank tried to tighten financial conditions. According to Watling, valuations are now in “bubble” territory and have never been so high except during the dot-com boom and pandemic era in stock prices. “You have a market here with a forward P/E ratio of 18 and a half times, which is just above the bubble,” Watling told CNBC’s “Squawk Box Europe.” “It’s a terrible environment for equity,” he added. When asked about the potential fall, Watling said investors should be cautious because if the S&P 500 returns to its historical average, the benchmark could drop as much as 900 points — a drop of nearly 25% from current levels. “If you say that [S & P 500] the forward earnings should be 200, and you say that on average 15 times, you ask for a number about 3000,” said Watling. .SPX 1Y line When investors can be tempted to stay in the market because of the lack of better options. , Watling suggests second. “If you want to make money, you need short equity over a three to six month timeframe,” he said. certain commodities you need to play, most likely in precious metals. “He cautioned, however, that this strategy is too aggressive and not suitable for average investor. Watling advises that investors should make multiple bets and not bet the house on one investment. Shares. has risen over the past five months, partly in response to the lack of conditions in the high-yield bond market. GE points at the beginning of this year for 2.6 percentage points, according to the Federal Reserve Bank of St. This is like defying the credit conditions wanted by the Federal Reserve, and Watling suggests it could be a story of short-term liquidity driving the market. Watling said the increase in central bank balance sheets worldwide since October was due to the reopening of China, the Bank of Japan printing money, and the Treasury’s general reserve account releasing liquidity to offset the Federal Reserve’s quantitative tightening program. “It may just be a short-term liquidity story that seems to have taken the spread out of the credit situation it’s been talking about,” he said.