More than half of experts polled in a recent Bankrate poll expect the stock market to fall more than 10% over the next year, but not immediately. Bankrate’s Third-Quarter Market Mavens survey shows that 53% of analysts polled expect stocks to “correct” or fall 10% or more from recent highs. A third of analysts expect a correction anytime now.
Bankrate’s survey showed a broad expectation that the stock market would plunge 10% or more in the coming year. Here’s how the numbers break down:
- About 53% of experts believe the market will drop 10% over the next year, but maybe not right away.
- About 33% believe a correction is overdue and could happen at any time in the next six months.
- Another 7% think stocks shouldn’t fall 10% for at least a year or more.
- One respondent declined to answer the question.
The results are a bit surprising, as respondents – all of them – also expect the stock market to be higher in a year, according to the survey. In fact, experts believe the market will grow an average of 9% through September 2022, in line with historical standards.
This article is one of a series devoted to Bankrate’s Third Quarter Market Mavens survey. We asked experts where stocks are heading over the coming year and over the next five years, and where investors might see the highest returns. We also asked them where the 10-year Treasury yield will go, the best places to invest $ 10,000 today, and when to expect the market to go down.
Why do experts expect stocks to fall?
Pundits were varied as to why and when they expected stocks to fall, the reasons ranging from economics to politics to good old-fashioned speculative excesses.
Reasons to expect a drop within a year
Among those who expect a correction in the coming year (but not imminently) are Sameer Samana, Senior Global Markets Strategist, Wells Fargo Investment Institute, and Clark A. Kendall, President and CEO. management, Kendall Capital Management.
“We are at the start of an economic and market cycle and corrections are rare and can be difficult to predict,” Samana said.
Others see politics weighing heavily on the direction the market will take next year.
“The timing will be affected by what happens in Washington,” said Mark Willoughby, senior vice president, Janney Montgomery Scott. “If Democrats embrace the huge tax and spending bills, it could be the catalyst for a market downturn. Other than that, I don’t see a market correction in the next 12 months. “
But a third of those polled in Bankrate’s survey believe a pullback is imminent or at least will happen in the next six months. These respondents include Sam Stovall, Chief Investment Strategist, CFRA Research, and Wayne Wicker, Chief Investment Officer, MissionSquare Retirement. Both point to historical trends that they believe could cause the market to fall.
“The S&P 500 has lasted almost three times as long since the last drop of 5% or more than the average since World War II,” says Stovall.
“Since 1980, each calendar year has had an intra-annual drawdown of around 13% on average,” says Wicker. “We haven’t had a pullback greater than 5% in 2021, so while it’s hard to predict, it would be a natural occurrence to see a 10% correction in the coming months.”
Reasons to expect a decline now or within six months
At least one other analyst is looking for hidden leverage (borrowing) or unexpected news as a catalyst for a decline over the next six months.
“There is a lot of leverage, an unknown amount of which is hidden, in the system,” says Kenneth Tower, chief market strategist, Quantitative Analysis Service. “The market has been incredibly resilient, but at some point there will be some news that will scare investors off and the market will fall.”
James Iuorio, managing director of TJM Institutional Services, also looks for excessive leverage in the system, but doesn’t expect it to lead to a correction in less than a year.
“I think we need a significant build-up of leveraged speculation on a specific asset to fuel the correction,” he said. “I don’t see him yet.”
Market may be due to pullback, but timing is unclear
Patrick J. O’Hare, chief market analyst at Briefing.com, however, takes the most defensible position on the issue of a market correction.
“The truth is, nobody knows,” says O’Hare. “Given that there hasn’t been a 5% drop in over 200 days, it’s no exaggeration to think that the market is likely to experience some significant pullback. Many individual stocks have already “corrected,” but the answer when the S&P 500 corrects probably lies in rising interest rates and falling prices of mega-cap stocks. “
What to do if you think stocks may take a correction soon
As O’Hare says, no one knows exactly when the market may correct, although there are signs of excessive leverage and speculation in the system. These signs can linger for years without a significant drop in stocks.
“Money has to be managed with the expectation that a 10% drop is always imminent,” says Kendall.
The real possibility of a correction at any time is why it is important for investors to follow sound investment strategies regardless of the economic cycle. These practices include:
- Invest in businesses backed by strong assets or cash flows
- Use average dollar costs to reduce your risk
- Use diversification to reduce the risk of a single position hurting you
- Avoid (too much) debt in your wallet
If you are worried about a market correction overnight, it could be a sign that you are not following good investing practices. It may be worth taking this nagging sentiment into account and getting your portfolio in shape before the market finally corrects itself.
Quotes from the experts
Bankrate’s third quarter 2021 survey of stock market professionals was conducted from September 8 to 16 via an online survey. Survey requests were emailed to potential respondents nationwide and responses were submitted voluntarily through a website. Respondents were: Chuck Carlson, CFA, CEO, Horizon Investment Services; Patrick J. O’Hare, Chief Market Analyst of Briefing.com; Sameer Samana, Senior Global Markets Strategist, Wells Fargo Investment Institute; Kim Forrest, CIO / Founder, Bokeh Capital Partners; Tom Lydon, CEO, ETF Trends; Sam Stovall, Chief Investment Strategist, CFRA Research; Kenneth Chavis IV, CFP, senior asset manager, LourdMurray; Dec Mullarkey, Managing Director, SLC Management; Kenny Polcari, Managing Partner, KACE Capital Advisors; Clark A. Kendall, President and CEO, Kendall Capital Management; Kenneth Tower, Chief Market Strategist, Quantitative Analysis Department; James Iuorio, Managing Director, TJM Institutional Services; Mark Willoughby, Senior Vice President, Janney Montgomery Scott; Robert Johnson, professor of finance, Creighton University; Wayne Wicker, Director of Investments, MissionSquare Retirement.