EDITOR NOTE: It’s one thing to deal with a market crash or market correction of 10% to 20%. It’s another thing to deal with an inflationary environment that leaves you with less value after that drop. This is precisely what Moody’s Analytics’ Mark Zandi is warning about. Yet he still toe’s the mainstream party line (Wall Street) claiming that the economy is going to be rip-roaring. In other words, despite inflation making you poorer, and despite the looming crash decimating your wealth, there’s nothing fundamentally wrong with the (Fed’s manipulation of the) economy. We call his BS. There are numerous things wrong with the economy, and here are 11 arguments toward the “herd opinion” that there’s only sunshine from here on out. But that’s Wall Street for you--a strong warning followed by a sharp yet indirect retraction. After all, these big firms don’t want to upset investors with something as frightening as, say, one of many possible truths.
Moody’s Analytics’ Mark Zandi has a message for investors: Brace for a significant market correction.
The firm’s chief economist expects a more hawkish Federal Reserve will spark a 10% to 20% pullback.
And, unlike the sharp drops over the past several years, Zandi anticipates a quick recovery won’t be in the cards particularly because the market is richly valued. He estimates it could take a year to return to break even.
He suggests the correction may already be underway because investors are starting to get spooked.
The Dow just saw its biggest weekly loss since October 2020, tumbling 3.45%.The broader S&P 500 saw its worst week since late February. The tech-heavy Nasdaq also had a losing week, but it’s just 1.28% off its all-time high.
Despite his market warning, Zandi believes the economy will avert a recession because the downturn is more about risk asset prices getting overextended than a serious fundamental issue.
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“The economy is going to be rip-roaring,” he said. “Unemployment is going to be low. Wage growth is going to be strong.”
Zandi has been ringing the alarm on inflation for months.
On “Trading Nation” in early March, Zandi asserted inflation was “dead ahead” and investors weren’t fully grasping the risks. According to Zandi, it’s still a problem affecting stock market and bond investors. Zandi sees little chance the benchmark 10-year Treasury Note yield will keep falling.
“I wouldn’t count on rates staying at 1.5% for very long given what’s going on,” he added.
Stocks and bonds aren’t the only risk assets catching his attention. Zandi also sees more trouble brewing in the commodities and cryptocurrency sell-offs. Plus, he’s worried about the sustainability of a strong housing market amid higher mortgage rates.
“Inflation is going to be higher than it was pre-pandemic,” Zandi said. “The Fed has been struggling for at least a quarter of a century to get inflation up, and I think they’ll be able to get that.”
Original post from CNBC