Plurality argue equities have been out of sync with the real economy since the start of the pandemic
The CFA Institute, the global association of investment professionals, surveyed its membership to analyse the impact of the coronavirus pandemic, and found that many respondents are expecting market corrections within the next one to three years.
The results showed that 45% of those surveyed thought this to be true, believing that equities in their respective markets have recovered too quickly.
The proportion of respondents who believe that equities are fairly valued was low across the board.
50% of respondents in North America are concerned about a correction, compared to 40% of Europeans, while respondents in emerging markets appear more optimistic that equities in their own market.
Double-digit declines have occurred in the S&P 500 every 1.87 years since 1950, therefore stock market crashes are more common than it may seem.
While the US stock market has been showing some signs of weakness with the Nasdaq trading lower for three weeks in a row last month. This is also raising concerns on Wall Street that a crash could be on the way.
Big tech companies reached new highs since the pandemic and many analysts argue that the markets are due for a correction as the economy recovers thanks to a fall in Covid-19 cases.
However, with a somewhat contrary view, a majority of analysts polled by Reuters believe that a near-term correction is unlikely.
Reuters polls of nearly 300 equity strategists taken across May showed all 17 stock indexes surveyed on were forecast to rise, with yearly gains in nearly all of them predicted to be in double digits in 2021.
“When it comes to assessing the market environment we prefer to choose ‘half full’. We will remain vigilant for rebalancing opportunities … as we expect rates and equities to drift higher,” noted Ehiwario Efeyini, senior market strategy analyst at Bank of America.
“In terms of the broader economic environment, we are closer to mid-cycle than late cycle and that growth is currently flashing bright green and surprising more than expected.”
“It is interesting to see the survey results telling us that respondents believe that equities have recovered too quickly, as it could show that CFA Institute members believe there is a disconnect between economic growth fundamentals and capital markets caused in part by monetary stimulus, which could be corrected in a not-too-distant future of less than three years,” said Paul Andrews, Managing Director of Research, Advocacy and Standards at CFA Institute.
“To me, it also indicates to authorities that monetary stimulus is not a simple or linear lever to pull given the complexity of the economic and financial ecosystem; there will be unintended consequences to consider in the future.”