Why this economist worries there's a 'meaningful' correction ahead
Following US stocks' post-election rally, Moody’s Analytics chief economist Mark Zandi joins Seana Smith and Brad Smith on Morning Brief to discuss his valuation concerns and how they threaten the macroeconomic picture. "Valuations have gone from highly valued to overvalued to bordering on frothy ... Everything feels very stretched to me, particularly in the context of rising long-term interest rates. I mean, if you go back two months ago, the ten-year Treasury yield (^TNX) was at 3.6%. Now, we're at 4.25%. We had been as high as almost 4.5% not long ago. That's a big increase in interest rates, but despite that, asset prices, equity prices, [and] everything else's values have risen. So, I do think this is something that is an increasing risk." He notes, "I'm an economist, a macro guy. I don't really talk about valuation in markets generally, except at times when they feel off-kilter. When they're too low or too high. And right now, they feel awfully high. These asset markets are priced to some really good news [with] nothing going wrong, and that doesn't feel like what's dead ahead of us." The economist adds he "would not be surprised at all" if the market were to see a 'meaningful' correction. "When I say meaningful, it's not one of these down 10% on stock prices that comes back next week. We've been getting these kinds of mini-corrections that last a week or two. I'm talking about something that is more substantive than that, like down 20% [to] 25% and we stay down for a while To watch more expert insights and analysis on the latest market action, check out more Morning Brief here. This post was written by Naomi Buchanan.
