Survey: Majority of top experts believe a stock market correction is likely within the next year

More than half of experts surveyed in a recent Bankrate poll expect the stock market to drop more than 10 percent within the next year, though not immediately. Bankrate’s Third-Quarter Market Mavens survey shows that 53 percent of surveyed analysts expect stocks to “correct,” or fall by 10 percent or more from recent highs. A third of analysts expect a correction any time now.

Bankrate’s survey showed a broad expectation that the stock market would plunge by 10 percent or more in the coming year. Here’s how the numbers break down:

• About 53 percent of experts think the market will fall 10 percent sometime in the next year, but maybe not right away.
• Around 33 percent believe that a correction is overdue and could happen at any time over the next six months.
• A further 7 percent believe that stocks aren’t likely to decline by 10 percent for at least a year or longer.
• One respondent declined to answer the question.

The results are a bit surprising, since the respondents — every single one — also expect the stock market to be higher a year from now, according to the survey. In fact, experts believe the market will rise an average of 9 percent through September 2022, in line with historical norms.

This article is one in a series discussing Bankrate’s Market Mavens third-quarter survey. We asked experts where stocks were headed in the coming year and in the next five years, and where investors might see the highest returns. We also asked them where the 10-year Treasury yield will go, the best places to invest $10,000 today and when to expect the market to decline.

Why are experts expecting stocks to slide?

Experts were varied when it came to why and when they expected stocks to fall, with the reasons ranging from economics to politics to good old-fashioned speculative excess.

Reasons to expect a drop within a year

Among those who expect a correction over the coming year (but not imminently) are Sameer Samana, senior global market strategist, Wells Fargo Investment Institute, and Clark A. Kendall, president and CEO, Kendall Capital Management.

“We are early in an economic and market cycle and corrections are few and far between and can be difficult to predict,” says Samana.

Others see politics weighing heavily on where the market is headed in the next year.

“The timing will be affected by what happens in Washington,” says Mark Willoughby, senior vice president, Janney Montgomery Scott. “If the Democrats pass the huge tax-and-spend bills, this could be the catalyst for a market downturn. Outside of that, I don’t see a market correction within the next 12 months.”

But one-third of the respondents in Bankrate’s survey think a pullback is imminent or at least will occur in the next six months. These respondents include Sam Stovall, chief investment strategist, CFRA Research, and Wayne Wicker, chief investment officer, MissionSquare Retirement. Both point to historical trends that they think could lead to a drop in the market.

“The S&P 500 has gone nearly three times as long since the last 5 percent or more decline than the average since World War II,” says Stovall.

“Since 1980, every calendar year has had an intra-year drawdown that averages about 13 percent,” says Wicker. “We have not had a drawdown greater than 5 percent in 2021, so while it is hard to predict, it would be a natural event to see a correction of 10 percent in the coming months.”

Reasons to expect a drop now or within six months

At least one other analyst is looking for hidden leverage (borrowing) or unexpected news as the catalyst for a drop in the next six months.

“There’s a lot of leverage, an unknown amount of which is hidden, in the system,” says Kenneth Tower, chief market strategist, Quantitative Analysis Service. “The market has been incredibly resilient, but at some point some news will spook investors and the market will drop.”

James Iuorio, managing director, TJM Institutional Services, is also looking for excessive debt in the system, but doesn’t expect it to lead to a correction in less than a year.

“I believe we need significant build-up of leveraged speculation in a specific asset to fuel the correction,” he says. “I don’t see it yet.”

The market may be due for a pullback, but the timing is unclear

Patrick J. O’Hare, Briefing.com chief market analyst, takes the most defensible position on the question of a market correction, however.

“The truth is, nobody knows,” says O’Hare. “Given that there hasn’t been a 5 percent drawdown in more than 200 days, it’s not a stretch to think the market is due for a pullback of some note. Many individual stocks have already ‘corrected,’ yet the answer to when the S&P 500 will experience a correction likely rests on interest rates moving up and mega-cap stock prices moving down.”

What to do if you think stocks may soon experience a correction

As O’Hare says, no one knows exactly when the market may correct, even if there are signs of excessive leverage and speculation in the system. Those signs can persist for years without stocks falling significantly.

“Money should be managed with the expectations that a 10 percent drop is always just around the corner,” says Kendall.

The real possibility of a correction at any point is why it’s important for investors to follow sound investment strategies regardless of the economic cycle. These practices include:

• Investing in companies backed by strong assets or cash flow
• Using dollar-cost averaging to reduce your risk
• Using diversification to reduce the risk of any single position hurting you
• Avoiding (too much) debt in your portfolio

If a market correction keeps you worried at night, it can be a sign you’re not following good investment practices. It may be worthwhile to heed that nagging feeling and get your portfolio in shape before the market does eventually correct.

Quotes from the experts

The S&P 500 has gone nearly three times as long since the last 5 percent-plus decline than the average since World War II.

— Sam Stovall, chief investment strategist, CFRA Research

Since 1980, every calendar year has had an intra-year drawdown that averages about 13 percent. We have not had a drawdown greater than 5 percent in 2021 so while it is hard to predict, it would be a natural event to see a correction of 10 percent in the coming months.

— Wayne Wicker, chief investment officer, MissionSquare Retirement

Methodology

Bankrate’s third-quarter 2021 survey of stock market professionals was conducted from Sept. 8-16 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Chuck Carlson, CFA, CEO, Horizon Investment Services; Patrick J. O’Hare, Briefing.com chief market analyst; Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Tom Lydon, CEO, ETF Trends; Sam Stovall, chief investment strategist, CFRA Research; Kenneth Chavis IV, CFP, senior wealth manager, LourdMurray; Dec Mullarkey, managing director, SLC Management; Kenny Polcari, managing partner, KACE Capital Advisors; Clark A. Kendall, president and CEO, Kendall Capital Management; Kenneth Tower, chief market strategist, Quantitative Analysis Service; James Iuorio, managing director, TJM Institutional Services; Mark Willoughby, senior vice president, Janney Montgomery Scott; Robert Johnson, professor of finance, Creighton University; Wayne Wicker, chief investment officer, MissionSquare Retirement.