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U.S. Stocks May Reverse Course by 50% in 2020

Joseph Davis who is the Vanguard Group Chief Investment Strategist and also its Chief Economist has said that stocks in the U.S. may reverse course by 50% in 2020. The strategist also asserted that the stocks also face the risk of being sold off in large moves by investors. Speaking to the sources, he said that:

“Financial markets run the risk of getting ahead of themselves.”

He pointed out that a 50% odds correction is more likely to occur than a 30% one. A correction in terms of percentage points is a 10% decline in value. This changes things for investors in the financial markets. There hasn’t been a drop in two years. The S&P’s 500 indexes came within range of a correction a year ago in December with a 20% drop. The markets almost entered a bear period then. Davis indicated that investors may be concerned next year about the reflation in stock prices rather than inflation. He forecast a pickup in U.S. volatility which has been quite low in recent times.

Davis also indicated that the Price to Equity ratios for the S&P 500 is quite higher than in recent history saying that “across the board, expected returns for most strategies are below trailing three-year returns”. Davis who serves as the Chief Investment Strategist for a $3 trillion behemoth asset manager, has the reputation for the cautious investment approach that uses index-tracking as a way to generate passive returns. He estimates that assets with a fair amount of risk are right now at par with the recently forecasted 3% United States growth which in itself may not occur according to Davis.

Vanguard isn’t the only institution worried about the high levels of market enthusiasm. Other financial institutions including several hedge funds are worried about this as well. Other financial institutions have high hopes that the positive movements of the markets shall also continue into next year. Many predict an advance of at least 28.5%. This, of course, indicates extreme optimism on the side of the markets.

Davis also indicated that high growth stocks are also worth considering. He said that mortgages also offer a kind of positive growth at the moment that everyone’s looking for. He also said that mortgages to be “little more attractive than they have for some time”. This means that this may be a good time to enter the markets come 2020 but for now, though, Davis indicated that “there will be better entry points”.

U.S. Stocks May Reverse Course by 50% in 2020

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