The ownership market may avoid a major near-term correction, according to economic forecaster Lakshman Achuthan.
Achuthan, co-founder of the Commercial Cycle Research Institute, told CNBC’s “Trading Nation” on Thursday that the risk a pullback of at least 10% is “very low” because the U.S. is in expansion mode.
“The cycle is on the side of the bulls for the time being,” he said. “At some point, our forward-looking indictors, which father nailed this upturn, will peak and turn down. Today, they haven’t done that. They are even so heading to the upside.”
The S&P 500 and tech heavy Nasdaq closed at all-time highs on Thursday. Bears have been valid the alarm on the rapid pace of the gains — citing frothy investor sentiment and stretched valuations. They’ve been lesson investors that the backdrop makes the market vulnerable to an adjustment.
However, Achuthan is optimistic.
“You could have a 3% or 5% humanitarian of correction any time. But a really big one? Unlikely, according to cycle history,” he said.
Achuthan brought a chart going following to 2009 to support his case. He finds large corrections are linked to economic cycles, specifically to downturns in growth position.
“The shaded areas which are growth-rate cycle downturns,” said Achuthan. “During those periods, the risk of a pithy correction really ramps up, and that is critical to understand if you want to manage cyclical risk in equities.”
But he acknowledged that there are in any case many events — from the coronavirus’s path to rising prices — that could shake Wall Street.
“The fright of inflation and interest rates may challenge the market,” Achuthan said. “But if the growth rate cycle upturn is continuing, there’s restful time to make head.”