- 45% of survey respondents told the CFA Institute that global
stocks have bounced back too fast after the COVID-19pandemic . - Equity
markets are likely to hit a correction in one to three years as central banks rollback stimulus efforts. - The MSCI ACWI Index of large- to mid-cap stocks worldwide has gained about 25% so far in 2021.
Stocks have been resilient after last year's plunge into a bear market because of the COVID-19 pandemic but the recovery has moved too fast in the eyes of many investment professionals who say equities could face a correction in the next 12 months.
45% of respondents in a CFA Institute survey agreed that equities in their respective markets have "recovered too quickly." The institute Tuesday released the results of its survey, which tallied responses from 6,040 members worldwide.
The results indicate that financial analysts believe there is a disconnect between economic growth fundamentals and capital markets caused in part by monetary stimulus, the institute said.
Central banks worldwide cut interest rates to ultra-low levels and increased asset purchases, among other actions, to foster economic recovery from the coronavirus crisis that forced a widespread shutdown of businesses and threw millions of people out of work. Those moves along with vaccinations of people worldwide from the respiratory disease have encouraged investors to embrace so-called risk assets including stocks.
In the US, the S&P 500 has gained nearly 12% since the start of 2021. That gain follows its 16.3% rise in 2020 after sliding into a bear market in March 2020 because of worries about the world's largest economy falling into recession. The tech-concentrated Nasdaq Composite has also advanced this year, picking up 7%, although many large-cap tech stocks have dropped in favor of small-cap stocks of companies who are closely exposed to economic recovery. The Nasdaq soared in 2020 by 43.6%.
Meanwhile, the MSCI ACWI Index, representing large- and mid-cap stocks in 23 developed and 27 emerging markets, has picked up about 25% this year following its 16.3% rise in 2020. The MSCI ACWI ETF has bulked up by 11% during 2021.
But stocks are likely to run into a correction within one to three years as central banks begin to rollback stimulus as their respective economies mend from the pandemic, the survey respondents told the CFA.
"To me, it also indicates to authorities that monetary stimulus is not a simple or linear lever to pull given the complexity of the economic and financial ecosystem; there will be unintended consequences to consider in the future," Paul Andrews, managing director of research, advocacy and standards at the CFA Institute, said in a statement.
Minutes from the Federal Reserve policy meeting in April indicated were moving closer to beginning discussions about potentially tapering economic support. The Fed has held its benchmark interest rate near zero and has bought at least $120 billion in assets each month to aid the economy through the pandemic.
The CFA Institute said 150,024 individuals received a survey invitation and the total response rate was 4%. The margin of error was plus or minus 1.2%.