CNBC reports that Moody’s Analytics Mark Zandi 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.
“The headwinds are building for the equity market,” Zandi told. “The Fed has got to switch gears here because the economy is so strong.”
He suggests the correction may already be underway because investors are starting to get spooked.
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.
“The economy is going to be rip-roaring,” he said. “Unemployment is going to be low. Wage growth is going to be strong.”
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