Investors worried about a broader stock market collapse, fear not. A meltdown has already happened with lots of stocks having tumbled in value, according to Wall Street veteran Larry McDonald.

Even with the S&P 500 recently reaching a fresh record high, the market has "crashed internally," McDonald, author of The Bear Traps Report, told the Julia La Roche show in an interview that was published on Thursday. "If you look at the amount of Hall of Fame brands, Harley-Davidson, down 30%, 40%, Lennar, 45%, just really great American brands," getting crushed, he said.

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He blamed the disconnect between those record highs and individual stocks being sold on a passive investment system that is getting "more broken." As retirement funds and inflows from exchange-traded funds push more money at big tech names, index funds like State Street SPDR S&P 500 ETF Trust SPY stay healthy on the surface. That gap is widening as institutional and hedge funds, also referred to as the smart money, take long positions in the index and short - betting against an asset - lots of individual names.

Also contributing is quarter-end and year-end tax-loss selling - unloading the worst-performing stocks to lower capital-gains burdens - from mutual funds and individual investors. Stocks already under pressure sell off even further, while other companies' stocks are sold just for those tax-loss strategies.

McDonald, former vice president of distressed debt and convertible securities at Lehman Brothers, is also worried about the convertible-bond market - bonds that can be converted into shares of common stock by the issuer - specifically with neocloud companies. CoreWeave (CRWV), for example, spooked stock markets earlier this week. Its high-yield bonds tumbled amid worries over the pace of borrowing and whether AI investments will ultimately pay off.

McDonald said CoreWeave is a "serial convertible issuer." Past examples of companies repeatedly coming to that market for funding included Tyco and Enron. Therefore, "it's a real warning sign because it's the last saloon."

"The last two times we saw this was in 1999 and 2021, and in both cases, this was incredibly foreshadowing for an event coming at us," he said. The dot-com crash followed in 2000, while 2022 proved a losing year for stocks, especially tech names partly due to rising U.S. interest rates.

As for the Federal Reserve, he said he is taking the contrarian view that three interest rate cuts are far more likely than three more hikes. He sees consumer-facing companies - McDonald's (MCD), Home Depot (HD), Netflix $(NFLX)$, Nike (NKE) and Lululemon (LULU) - "under massive stress," with shares down by double-digit percentages this year. That's as consumers battle rising energy and other costs.

He said he expects possibly one more Fed interest-rate increase before its members "tip their hand to a softer path." For that reason, he said now is an opportune moment to invest in gold and silver, pointing to monetary easing triggering a bull market for commodities. Precious metals tend to rise when interest rates are falling. Gold prices (GC00) are down 3% this year so far, while silver (SI00), off 18%, is looking like "one of the best-looking trades" for the next 12 months, he said.

"I like silver because you've got the data-center spending. Solar is like absolutely crazy ripping globally. Like the amount of solar capacity coming online in the United States and China. That's all bullish for silver," he said, adding that U.S. households are underowned when it comes to precious metals.

McDonald is also interested in one of those beaten-down consumer stocks, Nike, down around 50% from its 52-week high. He said many portfolio managers would prefer to own Nvidia headed into 2027 rather than the athletic apparel company that's struggling to engineer a turnaround. He likes Nike for its free cash flow and dividend, which offers something of "downside protection."

Analysts polled by FactSet estimate Nike will generate $1.36 in free cash flow per share over the next 12 months. The stock's Thursday close of $37.14 makes for a forward FCF yield of 3.65%. Nike's current annual dividend is $1.64 a share, which means the stock's dividend yield is 4.42%. That exceeds the forward free cash flow yield and the trailing free cash flow yield of 3.82%.

He said he's watching for one big event that could work in the company's favor in the distant future: "By the Summer Olympics in 2028, if [Nike] is up 100%, 150%, 200% from here, I wouldn't be surprised."