According to a poll of over 550 global investors by Deutsche Bank, an equity correction sometime before the end of the year is “an overwhelming consensus now”, with 58% forecasting a drop of 5% to 10%.
One in 10 expect a steeper tumble, while just less than a third predict markets will avoid stumbling in the next few months.
Investors also warned that weaker-than-expected economic growth was a potential risk, along with the danger of a central bank policy error, in which rising prices prompt monetary policy to be tightened too early.
The vast majority of respondents expect that current dose vaccines will still prevent at least severe cases of Covid-19. Very few respondents expect full scale lockdowns, with a majority predicting that restrictions either remaining stable or loosening in their country over the rest of the year.
Global share prices have risen by about 90% since the depths of the market crash in March 2020, lifted by central bank stimulus packages, government spending and successful vaccine rollouts that have allowed economies to reopen.
The S&P 500 index of US shares and the Europe-wide Stoxx 600 have hit a series of record highs this year, with both gaining about 18% during 2021 – much more than an average year.
This has lifted some stock market valuations to historically high levels, just as economic data suggests the global recovery from the pandemic could be past its peak.
Job creation slowed sharply in America in August as the Delta variant hit the labour market, the UK economy almost stalled in July with GDP rising just 0.1%, and Covid-19 outbreaks continue to disrupt global supply chains.
The S&P 500 fell every day last week in its worst run since February, having hit its latest record high at the start of September.
September is historically a relatively weak month for the markets, while October can be volatile, having seen both the Great Crash of 1929 and the Black Monday crash of 1987.
Investors do not anticipate a big sell-off this year. Deutsche Bank’s survey found that more market participants expect the S&P 500 and the Stoxx 600 to be higher, rather than lower, in three months’ time. Further ahead, a net balance of over 40% each index to be higher in a year’s time, showing a strong majority believe a pullback would be short-lived.
Deutsche Bank’s survey, conducted last week, also found that a fifth of investors still have not returned to their offices since the first lockdowns, including a third of respondents from the US because of the Delta variant.