What Could Trigger a Stock Market Correction?

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Moody's Analytics' Mark Zandi sees a stock market correction ahead.

The U.S. stock markets, notably the Nasdaq and S&P 500 indices, have been hitting new highs almost every day in July, and have shown a near-uninterupted climb since March 2009. “Investors see a great economy,” said Mark Zandi, chief economist at Moody’s Analytics, noting that corporate earnings have picked up after a sluggish two years, and the prevailing low interest rates imply potentially the best returns on stock markets across asset classes.

However, “the markets are pretty highly overvalued, so I would be cautious,” and a correction is likely, said Zandi during a recent appearance on Knowledge@Wharton’s SiriusXM show. Risks of a “cataclysmic event” in Europe over Brexit have receded and the markets seem to shrug off tensions around North Korea, he added. But a correction could be triggered by unmet expectations from the Federal Reserve or from promised tax cuts, he warned. Stocks of financial services companies in particular could take a hit if the promised regulatory easing doesn’t materialize. More broadly, he felt the worst is over with income and wealth disparities, and that job growth will continue to slow down.

Additional coverage:

How a Rollback of Dodd-Frank Would Impact Wall Street

Will the Fed and U.S. Monetary Policy Ever Get Back to ‘Normal’?

Why a U.S. Tax System Overhaul Would Be ‘a Massive Undertaking’

What’s the Matter with the IPO Market? That’s the Wrong Question

The Knowledge@Wharton SiriusXM show airs Monday through Friday, 10 a.m. – 12 p.m. EST, on Wharton Business Radio on SiriusXM channel 111.

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