Key Takeaways
\nThe S&P 500 could fall 10% to 15%, Ed Yardeni of Yardeni Research said.Investors should brace themselves for “more violent and frequent shocks” to the global economy this year, according to Allianz chief economic advisor Mohamed El-Erian.<\/p>\n
Stock-market jitters are back. But some experts think investors aren’t jittery enough.\n<\/p>\n
Broad market indexes declined<\/a> to start the week, with the Dow and the S&P 500 in the red as U.S. crude prices surged past $100 per barrel. A market gauge that measures investor sentiment known as the Cboe Volatility Index,<\/a> or the VIX, briefly kissed the 30 level\u2014a reading indicating fear\u2014for the first time since April, when global stock markets crashed on the heels of the Trump administration unveiling its trade policy. CNN’s Fear & Greed Index recently pointed to “extreme” fear.\n<\/p>\n For all of the negative and potentially lasting implications of a prolonged war in Iran, investors appear largely convinced\u2014as measured by major banks clients’ equity positions\u2014that the dislocation in U.S. stocks will prove fleeting. Some market experts, however, say investors aren’t pricing in the possibility of outcomes like a correction<\/a> in U.S. stocks or a recession.\n<\/p>\n WHY THIS MATTERS TO YOU<\/p>\n Investors appear to have become accustomed to brief stock market shocks, which may lull them into a false sense of security at exactly the wrong time.<\/p>\n “Overall equity positioning in our reading has dipped slightly below neutral,” Deutsche Bank’s research team including Parage Thatte and Binky Chadha said in a research report on Friday. “A profusion of shocks in the last 4 years,” they wrote, “has inured investors into not reacting to potentially short-term disruption.”\n<\/p>\n On prediction markets, there’s some caution\u2014but not outright fear in stocks. Polymarket bettors place the highest probability, or about 74%, on the S&P 500 ending the month at above 6500, implying a less than 5% decline from recent levels.\n<\/p>\n Investors appear to be placing an 80% probability that the global economic shock will be “temporary and reversible,” Mohamed El-Erian, chief economic advisor of Allianz, said on CNBC Monday morning. He puts those odds at 50%, saying that the global economy is likely to be subject to “more violent and more frequent shocks” this year.\n<\/p>\n DataTrek’s Nicholas Colas and Jessica Rabe in a note yesterday said “oil prices<\/a> are the lynchpin to the market,” and that historically crude prices quickly doubling has meant that “a recession is usually not far behind.”\n<\/p>\n