Finance

Risk of a major correction is ‘really low,’ economic forecaster Lakshman Achuthan says

The stock market may avoid a major near-term correction, according to economic forecaster Lakshman Achuthan.

Achuthan, co-founder of the Economic Cycle Research Institute, told CNBC’s “Trading Nation” on Thursday that the risk a pullback of at least 10% is “really low” because the U.S. is in expansion mode.

“The cycle is on the side of the bulls for the time being,” he said. “At some point, our forward-looking indictors, which have nailed this upturn, will peak and turn down. Today, they haven’t done that. They are still heading to the upside.”

The S&P 500 and tech heavy Nasdaq closed at all-time highs on Thursday. Bears have been sounding the alarm on the rapid pace of the gains — citing frothy investor sentiment and stretched valuations. They’ve been warning investors that the backdrop makes the market vulnerable to an adjustment.

However, Achuthan is optimistic.

“You could have a 3% or 5% kind of correction any time. But a really big one? Unlikely, according to cycle history,” he said.

Achuthan brought a chart going back to 2009 to support his case. He finds large corrections are linked to economic cycles, specifically to downturns in growth rate.

“The shaded areas which are growth-rate cycle downturns,” said Achuthan. “During those periods, the risk of a significant correction really ramps up, and that is critical to understand if you want to manage cyclical risk in equities.”

But he acknowledged that there are still many events — from the coronavirus’s path to rising prices — that could shake Wall Street.

“The fear of inflation and interest rates may challenge the market,” Achuthan said. “But if the growth rate cycle upturn is continuing, there’s still time to make head.”

Disclaimer

View Article Origin Here

Related Articles

Back to top button