In case of headwinds, US stocks may correct 20%
The message that Moody’s Analytics chief economist Mark Zandi sends to investors is to prepare for a significant correction in the US stock market.
|The Dow Jones Industrial Average just saw its biggest weekly drop since October 2020 after losing 3.45%. Photo: AFP|
Mark Zandi predicts the hawkish policy of the US Federal Reserve will lead to a correction down from 10% to 20% in the US stock market.
Unlike the sharp declines of the past few years, Mr. Mark Zandi said that it will be difficult to recover quickly after the next correction because the market is priced at a high level. Moody’s Analytics estimates it could take up to a year for the market to return to breakeven.
“Headwinds are hitting the stock market,” Mr. Zandi bcommentary on CNBC, after the US Federal Reserve (Fed) pushed the roadmap to raise interest rates in 2023, 1 year earlier than the Fed’s announcement in March.
Analysts at Moody’s Analytics said that the correction in the capital markets may have happened because investors are starting to feel nervous. The evidence is that the Dow Jones just saw its biggest weekly loss since October 2020 after losing 3.45%, while the S&P 500 index had its worst trading week since late February 2021. . Meanwhile, the tech-heavy Nasdaq index also had a down week with a 1.28% drop from its peak.
However, Mr. Zandi still believes that the US economy will prevent recessions related to risk asset prices being pushed beyond the fundamentals.
“The economy is going to explode. Unemployment will be low. Wage growth will be strong,” Mr Zandi said.
Before that, the chief economist of Moody’s Analytics had repeatedly sounded the alarm about US inflation over the past few months. In early March, Mr. Zandi asserted that inflation was on the horizon but that investors were not fully grasping the risks. According to experts, inflation is still an issue affecting the stock market and bond investors. The probability that the 10-year US Treasury bond yields continue to decline is not much.
Stocks and bonds are not the only risky assets investors are interested in. According to Mr. Zandi’s prediction, the sell-off of virtual goods and currencies is also more difficult. In addition, the sustainability of the housing market in the context of high mortgage interest rates is a concern.
“Inflation will increase higher than before the pandemic (Covid-19)”, Mr. Zandi predicted. “The Fed has struggled for at least a quarter of a century to raise inflation, and I think they’ll be able to get there,” said C.Moody’s Analytics experts emphasized.