Shilling pointed to the recent run-up in risky assets, such as stocks and cryptocurrency. That itself is a sign the market is poised to drop, he said, especially once a downturn gets underway.

"You look at all the kind of speculation that we've had out there, it's indicative of a lot of overconfidence, and that usually gets corrected and corrected violently," he said.

The economy has already been flashing key signs of weakness as high interest rates take their toll. The labor market is weakening, with the unemployment rate sticking close to a two-year high in March.

Meanwhile, quit rates slumped to about 2% in March, a sign that workers were waking up to difficult hiring conditions and less willing to leave their jobs than they were in the past.

The job market, for one, is "obviously slipping" as firms pull back on hiring, Shilling said.

Shilling believes companies have held onto more workers than needed because of the shortage of labor that slammed employers during the pandemic. He predicted layoffs would escalate later this year, with unemployment peaking at 5% to 7% as the economy weakened.

"Employers wanted to hang onto their workforce and even add to it because they figured things were going to be tight forever," Shilling said. "Well, they haven't been tight forever. The economy's growth has been slipping.

He added: "Employers are simply cutting back." 

Job losses could end up hitting Americans hard, especially since there are signs that many may be in worse shape financially than they were several years ago. San Francisco Fed economists estimated that by March, consumers had probably blown through the last of their excess savings from the pandemic. 

Meanwhile, some recession indicators have for months been causing alarm over the economy. The 2-10 Treasury yield curve, the bond market's most famous recession gauge, has been signaling a downturn since July 2022. The Conference Board's Leading Economic Index, another gauge of economic strength, ticked lower in April, though the measure is not yet in recessionary territory.

"When you start to see the softness in these indicators, and the actual turn down in business can be long and variable, but they are reliable enough, and I think that the safe bet is for a recession starting later this year if we're not already in it," Shilling said.

Shilling is known for his contrarian and often bearish takes on the market. Previously, he told BI he looked to actively disagree with other Wall Street strategists, as the consensus view is typically already discounted in markets.

"I think people are being overly optimistic and hopeful in the face of a lot of evidence to the contrary," he said.