Main Points Writing this thematic piece is fraught with danger. People will only remember it if I get it wrong. In fact if I get it right, and a crash is not imminent, then this paper will quickly fade into memory as an ‘obvious observation’ (as so many observations are with the benefit of hindsight).
But if the converse happens and a crash does come sooner rather than later, then error of my ways will haunt me forever more. Right now many are worried that the long awaited for crash in the US (and therefore global) equity market is imminent.
As I have said many times before; death, taxes and market crashes…they’re all inevitable so get used to it. I argue that a market correction – that is, a global equity market fall somewhere between 5 to 15% – is far more likely than a market crash (a global equity market fall in excess of 20%) within the next 12 months. Why? US equity markets are expensive – but not outrageously so by most measures, the final stages of our ‘guide to bubble formation’ – namely geographic contagion has yet to run its full course (global equities are still in the ‘fair-value’ range) and central banks remain very supportive of markets overall.
Put these pieces of the puzzle together and you have the makings of the potential for a market correction (possibly a sizable one) but not a market crash – at least not just yet…