Economist Nouriel Roubini, who correctly predicted the 2008 financial crisis, said global stocks could drop as much as 10% in the second half if the economy surprises negatively.
(Bloomberg) — Economist Nouriel Roubini, who correctly predicted the 2008 financial crisis, said global stocks could drop as much as 10% in the second half if the economy surprises negatively.
A slump of that magnitude would be an abrupt reversal for markets, which soared in the first half of the year amid hopes interest rates will peak soon and optimism that the global economy will hold up better than expected. Tech stocks have lead the advance in equities, driven particularly by enthusiasm in the US over developments in artificial intelligence.
“A 10% correction is not totally unlikely if the economy starts to soften up globally” and high inflation persist in Europe, the US and the UK, said Roubini, chairman and chief executive officer at Roubini Macro Associates in an interview with Bloomberg Television’s Francine Lacqua at the Ambrosetti Forum in Cernobbio, Italy.
The MSCI All-Country World Index is up 13% this year. Even after pulling back as much as 5.7% in August amid concerns about the health of the Chinese economy, the gauge has started rebounding over the last two weeks.
“If the global economy is going to weaken, if there’s still a meaningful chance of a bumpy landing, probably markets have rallied too much today, and that’s maybe gonna lead to a correction in the second half of the year,” he said.
The economist, whose prescience on the housing bubble crash of 2007 to 2008 earned him the nickname Dr. Doom, said last September he expects “a long and ugly” recession in the US and globally, which could last for all of 2023. He also sees the S&P 500 dropping as much as 40%. The index ended up rallying as much as 28% since bottoming in October.
Roubini now holds a less pessimistic view on the global economy.
“Compared to six months ago, where there was a serious risk of real hard landing for the global economy, those risks are reduced right now. That’s the good news,” Roubini said. “But I think there’s still an open discussion on whether the global economy is gonna achieve achieve a soft landing as opposed to a bumpy landing.”
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.