US stock market has 70 percent chance of crashing... now! - research
The risk of a large-scale correction in US stocks is on the rise, say researchers from Vanguard Group. They warn the probability is 30 percent higher than what has been typical over the past sixty years.
Vanguard's chief economist Joe Davis said investors do need to be prepared for a significant downturn which is now a 70 percent chance.
"It's about having reasonable expectations," Davis said. "Having a ten percent negative return in the US market in a calendar year has happened 40 percent of the time since 1960. That goes with the territory of being a stock investor."
The economist added, “It’s unreasonable to expect rates of returns, which exceeded our own bullish forecast from 2010, to continue.”
In its annual report, the company told investors to expect no better than four to six percent returns from stocks in the next five years. Some indicators suggest "a little froth" in the market.
"The risk premium, whether corporate bond spreads or the shape of yield curve or earnings yields for stocks have continued to compress,” said Davis. "We're starting to see, for the first time... some measures of expected risk premiums compressed below areas where we think it can be associated with fair value."
Overreaching is no better a solution for a lower-return environment than getting out of the market entirely, according to the economist. He expressed worries that after hearing "lower returns," some investors will view that as a catalyst to become more aggressive to generate the returns they have been used to in recent years.
https://www.rt.com/business/407274-new-black-monday-coming/
Thirty years ago Wall Street slid into the abyss, suffering the biggest one-day market fall of over 22 percent. Since then the Dow Jones has risen from 1,738 points to an all-time high of over 23,000, raising fears another historic crash is on the cards.
RT talked to Keiser Report host Max Keiser about the root causes of the 1987 crash and the possibilities of another market meltdown.
Today’s stock market has parallels to the 1987 market, said Keiser, adding that “valuations are at historic highs.”
“The Fed (and central bank counterparts) are pumping money, and sentiment is wildly bullish.”
Analysts have been warning recent stock market moves look eerily similar to just before 1987’s ‘Black Monday.’ Investors also raised concerns steep valuations might mean a correction is overdue.
On October 19, 1987, stock markets around the world crashed, shedding billions in value very quickly. The crash began in Hong Kong and spread to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones Industrial Average which comprises the 30 largest US publicly traded companies, lost 22.6 percent of its value that day.
Keiser says to understand what happened with the market we have to recall the global financial crisis of 2008.
“You need to stay invested, because of lower expected returns," Davis said, adding "Don't become overly aggressive. The next five years will be challenging, and investors need to have their eyes wide open."
US stocks have been on a roll since Donald Trump’s presidency. They have reached multiple record highs this year, with the Dow adding more than 23 percent, the S&P 18 percent and the Nasdaq Composite 28 percent.
source
https://www.rt.com/business/411185-us-stock-market-correction/