Moody's Analytics Chief Economist Mark Zandi has warned investors of a significant correction in the market and expects recovery from it to take long.
Speaking to CNBC, Zandi said he expected a more hawkish Federal Reserve will spark a 10 percent to 20 percent pullback in the market, which could take a year to return to break even.
He anticipates a quick recovery won't be on the cards particularly because the market is richly valued.
"The headwinds are building for the equity market. The Federal Reserve has got to switch gears here because the economy is so strong," Zandi told CNBC.
However, he believes the economy will avert a recession because the downturn is more about risk asset prices getting overextended than a serious fundamental issue, CNBC reported.
“The economy is going to be rip-roaring. Unemployment is going to be low. Wage growth is going to be strong,” he said.
Earlier this year, Zandi had warned about the risk of high inflation affecting the stock market and bond investors. He now expects inflation to be higher than the pre-pandemic level.
“I wouldn’t count on rates staying at 1.5 percent for very long given what’s going on,” he said.
Not only in stocks and bonds, but Zandi also sees more trouble brewing in the commodities and cryptocurrency sell-offs. Also, he’s worried about the sustainability of a strong housing market amid higher mortgage rates, the report added.