J.P. Morgan co-president Daniel Pinto believes equity markets could see as much as a 40 percent correction within the next few years.
“The equity market has some way to go for the next year to two,” Pinto said in an interview with Bloomberg TV. “But then, if there is a correction, it could be a deep correction. It could be between 20 and 40 percent depending on the valuations at the time. The most important thing for someone like us is just to be prepared.”
Pinto’s comments come a month after fears of burgeoning inflation and rallying interest rates caused a spike in market volatility and sent the Dow Jones industrial average tumbling into correction territory. Many Wall Street economists expect prices to steadily increase throughout 2018 given tight labor market conditions.
February proved another strong month for job creation, with ADP and Moody’s Analytics reporting that companies added 235,000 jobs over the course of the month.
Pinto noted that market corrections tend to be the result of many factors, but he highlighted central bank activity as a potential pitfall for global markets.
“I think those are the things you want to watch: That inflation doesn’t go up too fast, that forces the central banks to go a little faster and quickly than they’re doing now,” the bank executive explained. “So you want to watch economic indicators, that they don’t show that the economy is sliding down and you want to look at some geopolitical issues.”
Markets consider a March rate hike from the Federal Reserve nearly certain, judging by trading in the Fed funds futures market. Subsequent hikes are anticipated in June and a third likely coming in September, according to the CME’s FedWatch tracker.