If you thought September was a bad month for stocks, fasten your seat belts, because the equities markets may be headed even lower before year’s end.
A Deutsche Bank survey of more than 600 market professionals around the world taken Oct. 6-8 showed an overwhelming majority (71%) expect stocks to lop off at least another 5% by then. Sixty-eight percent predicted a similar decline in September, Deutsche Bank noted—correctly, as it turned out.
In the U.S., September saw the first monthly decline this year in the Standard & Poor’s 500, which lost about 5%. In the last week alone, the index shed 1.92% for its worst weekly performance since February. Since the end of September, the S&P 500 has bounced back about 2%. Even so, market professionals are worried that the prospect of higher inflation and higher Treasury yields will negatively affect stocks.
“For the first time since June, the biggest perceived risk to markets is now higher yields and inflation,” Jim Reid, head of thematic research at Deutsche Bank, wrote in a report. Rounding out the market pros’ top three concerns were the risk of a central bank policy error and a lack of (or short-lived) strong economic growth. COVID-19 worries fell out of the top three risks for the first time.
Some economists worry the Federal Reserve has kept interest rates too low for too long, allowing inflation to rise sharply above its target, which could result in aggressive rate hikes aimed at choking off inflation. Higher rates make borrowing money more expensive, which can force businesses and consumers to revise their plans for expansion and spending.
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