There may be a painful stock market correction

Cathie Wood, CEO, CIO and founder of ARK Invest, interviewed by Scott Wapner of CNBC last week warned of the growing risk of a stock market correction if rates continue to rise "sharply".

At around 3:30 a.m. of the CNBC video, Wood told Wapner: “I believe that if rates were to take a sharp turnaround, we would see a reset in valuation and obviously our portfolios would be prime candidates for such a reversal of the trend. rating. .

Here is the video of the interview:

… and just last week, real yields have risen, and for the first time in a long time, 30-year real rates on US government bonds (i.e. TIPS), which have just risen above 0% …

And so 10-year real bond yields also spike after a long time not moving.

What happens if real rates rise? That a higher yield is also required a higher, i.e. a lower P / E, even for stock market securities, Now this greater value is reached either with an increase in dividends, which depends on the profitability of the companies, or with a lower stock price.

So, quite simply, ARK's Cathie Wood obviously expects a general recalculation of stock prices with a very strong adjustment. And, as she says, "There will be a reset of the ratings, and this will cause fear." Finally we will see many, many bubbles deflate, according to a classic pattern of the explosion of financial bubbles. A solution similar to 1929.

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The article There may be a painful correction in the stock market comes from ScenariEconomici.it .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/ci-potra-essere-una-dolorosa-correzione-del-mercato-azionario/ on Mon, 22 Feb 2021 08:00:50 +0000.