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Monday, September 13, 2021
But that doesn’t mean you should sell
The calls for a stock market correction are beginning to blow through the streets of Wall and Broad.
We aren’t talking about the reiteration of a decade-long Nouriel “Dr. Doom” Roubini type call for a stock market crash due to the always easy excessive valuation and bloated government debt arguments (the S&P 500 is up 506% since March 1, 2009). Instead, we are referencing stock market correction calls of at least 10% by some of the brightest minds on Wall Street, whose work I really respect.
“You should always be expecting a 10% correction. If you’re investing in equities, you should be prepared for that at any time,” Morgan Stanley’s Chief Investment Officer Mike Wilson told Yahoo Finance Live. “The bottom line for us… is the risk reward is not particularly great at the index level from here, no matter what the outcome is. That’s why we don’t have any upside to the S&P for the rest of the year.”
Deutsche Bank strategist Binky Chadha also recently cautioned on the chance for a near-term correction in markets. Bank of America’s Savita Subramanian has also issued a warning on the market of her own. I would even read Ark Invest’s Cathie Wood recent selling of Tesla’s stock as a red flag on high multiple stocks.
The question investors need to be asking is straightforward. Should you give a hoot about these calls from top Wall Street minds? I fancy the answer is yes, for a few reasons.
For one, peek under the hood of the market and you will see evidence of a rolling correction (as Wilson likes to refer to it as) that could soon bubble up to the headline-grabbing major indices. About 90% of Russell 2000 stocks have already fallen into a correction, as Bloomberg notes. Morgan Stanley’s work reveals that the average stock in the S&P 500 is down 10% from its 52-week high. Outflows from cyclical stocks since June 15 have tallied $15 billion, according to a recent Jefferies note.
These are indications of shifting sentiment in markets, and it’s shifting with good reason.
Within a week, household name companies such as Sherwin-Williams, United Airlines, Delta Air Lines, Southwest Airlines and PPG Industries all issued third quarter earnings warnings due to the impact of the Delta variant (among other factors). And MGM Resorts told investors last week cancellations are picking up. More of this negative commentary lurks as companies present at investment banks this month.
So in other words, the fundamentals that have underpinned the market’s rally up until September have changed for the worse. Don’t let the hardcore bulls tell you otherwise, the proof is in the pudding (large companies’ warnings).
Meanwhile, all of this unfolds just as super accommodative Federal Reserve policy — a big driver of the…
Read More: finance.yahoo.com