In a frightening prospect for investors, more than one expert seems to think share markets are headed for a massive correction in the coming weeks.
DeVere Group chief executive Nigel Green has warned everyone to brace for a 10% dip, citing the likelihood of central banks in the US, UK, and Europe raising interest rates in May.
"This is likely to cause jitters in the market as some investors, concerned about short-term profits, will move into panic-selling mode," he said.
"Furthermore, they will have legitimate concerns that further rate hikes now – when monetary policy time lags are notoriously long – could steer economies into a recession."
JP Morgan Chase & Co analysts warned of the same danger in a memo to clients, forecasting a potential 14% drop over the next few weeks.
The S&P 500 Index (SP: .INX) closed Thursday morning Australian time at 4,055.99 points.
The JP Morgan team predicted the index could build negative momentum as it trades in the 4,010 to 4,040 range.
"We think it eventually breaks medium-term support near 3,760 and extends to retest the 3,491 October 2022 low, before setting a low for the bear cycle."
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A time bomb is about to blow
Both US and S&P/ASX 200 Index (ASX: XJO) shares have rallied over the past month, which Green says points to returning confidence in earnings growth.
But unfortunately, bond markets are contradicting this optimism with inverted yield curves.
"This reflects fear that the final rounds of interest rate hikes, from the major central banks this spring and summer, may tip economies into recession."
Green is uneasy at the situation, which makes him think markets are now in a "calm before the storm" phase.
"This huge disconnect between stocks and bonds suggests that investors should brace themselves for significant volatility in global financial markets over the next few weeks," he said.
"We could see a 10% correction."
For God's sake, stop the pain
Green pleaded for central banks to give rate hikes a rest.
"Economists estimate interest rate changes take up to 18 months to have the full effect. This means monetary policymakers need to try and predict the state of the economy for up to 18 months ahead," he said.
"With inflation seemingly having peaked, central banks are slowly winning the battle and officials now need to take their foot [off] the brake."
One bright note for long-term investors, said Green, is that a massive market downfall could present a golden chance to buy up stocks for cheap.
"A market correction is a natural part of the market cycle and can present major buying opportunities for long-term investors who are willing to weather short-term volatility."
