IMF chief: An additional 20% drop in US stocks is ‘definitely possible’

The shift in investor sentiment could see an additional 20% drop for US stock markets, according to the International Monetary Fund’s director of money and capital markets.

IMF research has found that higher interest rates and future earnings expectations have been driving down company valuations given the current downturn in the market, CNBC’s Tobias Adrian tells Jeff Cutmore at the 2022 IMF and World Bank Group annual meetings in Washington. Capital.

On Tuesday, he said sentiment and risk returns have held “well” so far, leading to an “orderly tightening”.

asked about a CNBC’s latest interview with Jamie DimonIn which the CEO of JPMorgan said, Standard & Poor’s 500 It could easily go down another 20%, Adrian said, which is “definitely possible.”

The benchmark is down about 25% in the year to date.

US Federal Reserve Raised her money to 3%-3.25%, the highest level since early 2008, in September as it tries to cool the 8.3% year-on-year inflation rate. The latest US inflation figures are due on Thursday.

“I think what Jamie Dimon is signaling is that there could be a shift in sentiment as well. And that of course will come back to economic activity,” Adrian said.

“Now, for the 20% figure, that’s definitely possible. It’s not our baseline, but it’s something that is possible.”

Adrian added that the IMF does not have a specific figure for its baseline, but it was one where financial conditions continue to tighten, economic activity slows and markets continue to be under pressure.

Tuesday, Foundation published Its global economic outlook, where it forecast global growth will slow to 2.7% next year, 0.2 percentage point lower than its forecast for July.

She also said that 2023 will feel like a recession for millions around the world, with about a third of the global economy experiencing a downturn.

Adrian told CNBC that despite the recent volatility in areas like British government bondsThe IMF’s baseline continued that global credit markets would remain in an “orderly fashion” and would not turn into a systemic crisis on the scale of the “Lehman moment”.

But he added that there is a lot of downside risk.

“[Financial stability risks] Too high. It is only higher in times of acute crisis, such as the 2008 crisis, the Covid 2020 crisis or the euro crisis.”

“So yeah, we’re at a very stressful moment, and we’re hoping to avoid a systemic event. But the probability is definitely high at this point.”

He noted that banks have a lot more capital and liquidity than during the 2008 crisis, when the banking system caused a lot of acute stress – however, the opposite scenario in emerging markets would see 30% of banking assets undercapitalized, points Weakness in He warned that the non-bank financial system could penetrate the banking system.