Fed mistakes could spark ‘unusually fast’ bear market, ‘lost decade’ for stocks

MarketWatch/Ryan Vlastelica/3-29-2018

“Uncertainty over trade policy may be the primary driver of the U.S. stock market at the moment, but the real policy risk facing equities could be coming from the Federal Reserve, with the potential downside a lot more pronounced than investors are currently anticipating. . .Barry Bannister, head of institutional equity strategy at Stifel, said it was a concern that the Fed’s view for 2019 and 2020 had grown more hawkish, which raised the risk of the central bank making a policy mistake. ‘What matters for investors is that any decline is likely to be unusually rapid and occur as a result of P/E compression, resulting from policy risks not weak GDP,’ he wrote in a research report. “Investors need a bit more acrophobia, as our best model points to a bear market and lost decade for stocks.”

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