Stock market looks 'eerily similar' to last big crash, veteran Charles Schwab analyst says in dire warning for 401(k)s

Charles Schwab economists are pointing out that current market conditions are becoming more similar to 2021, the year before the most recent time stocks soured.

The bank's investment analysts warned of the problems caused by the growing disconnect between individual stocks doing badly and indexes such as the S&P 500 going gangbusters.

'If we continue to see more weakness in the former and strength in the latter, it will start to eerily mimic 2021's dynamic,' wrote Liz Ann Sonders, who's been Charles Schwab's chief investment strategist for 24 years, in a June 24 market commentary.

Surging tech stocks have taken both the S&P and the Nasdaq to record heights, but as Sonders points out, most companies in these two indexes don't reflect the out-of-this-world performance of a firm like Nvidia, which recently became the world's most valuable company.

The percentage of stocks in the S&P trading higher than they did in the last fifty trading days has plummeted to around 50 percent, when it was closer to 90 percent at the start of 2024.   

'That was the case in the second half of 2021 which, with the benefit of hindsight, correctly signaled that the market would no longer be able to hold up at the index level—thus leading to the bear market in 2022,' Sonders wrote.

The S&P shrank 18.11 percent in 2022, according to Forbes. The index truly hit rock bottom at the end of September and has climbed more than 50 percent to where we stand today.

If the same scenario happens again sometime in 2024 or 2025, Americans may see their net worth go down substantially since much of their retirement accounts are thoroughly invested in tech-heavy indexes like the S&P.

Wall Street pros are also worried about the stranglehold giant, blue chip stocks have over the entire market. 

As of June 7, just three US stocks - Microsoft, Nvidia and Apple - make up more than 20 percent of the value of the S&P for the first time since the year 2000, MarketWatch reported.

And 2000 is a significant year because that when the Dot Com bubble bursted, wiping out some $5 trillion in wealth in its wake.

This means if even one of these companies - god forbid all three - flip into the red, it could send one of the world's largest indexes into a tailspin and erase years of positive wealth accumulation for millions of Americans.

In recent weeks, top bankers and even a leading former retail CEO have issued chilling warnings about the US economy. 

In May, Jamie Dimon - head of the world's biggest bank JPMorgan Chase - said that  the worst outcome for the US economy would be 'stagflation'. 

This is when inflation continues to go up, but unemployment is high and growth slows. 

Economists consider stagflation, last seen in the US in the 1970s, to be worse than a recession. It would send stocks down, hitting 401(K)s and other retirement savings.

Other economists like CFRA Research's chief investment strategist Sam Stovall are also saying shares won't continue to go up - or at least there'll need to be a correction before they resume climbing. 

'I am getting increasingly concerned that we have to endure another decline of 5 percent or more before the year is out,' Stovall said in June.

Others still are predicting a downturn of epic proportions - one that could dwarf the one during the 2007–2008 financial crisis.

Meanwhile, the fault lines of the US economy are 'about ready to crack' was the stark warning from one of the America's top retail CEOs Bob Nardelli.

The former boss of Home Depot and Chrysler says the Biden administration's policy missteps could create significant challenges for the next president.

'What I've seen over the past three-and-a-half years is that a series of debacles and missteps have created a tremendous pressure on the fault lines of our economy, and they're about ready to crack,' Nardelli said. 

'So we're in for a rough time, I would say.'