Don't Be Surprised if Stocks Drop 50%

Henry Blodget says we should at least be prepared for the possibility
By John Johnson,  Newser Staff
Posted Jul 31, 2014 7:51 PM CDT
Don't Be Surprised if Stocks Drop 50%
Is the New York Stock Exchange poised for a correction?   (AP Photo/Mark Lennihan, File)

The Dow tanked more than 300 points today, and the market in general has been "sputtering" of late, writes Henry Blodget at Business Insider. So are we on the brink of that correction everyone seems to be talking about? Blodget says that he, like everyone else who writes about the market, doesn't know. But what he does know is that stocks are currently overvalued by "every valid historical measure." And that doesn't bode well, because it can signal not just a minor correction on the horizon but a market crash.

"I would not be surprised to see stocks fall ~50% from this level in the next few years," he writes. "And, if that happens, you shouldn't be surprised either." Naysayers argue that the market has hit a "permanently high plateau," but Blodget doubts it. Expensive stocks, unusually high corporate profit margins, and Fed tightening could combine to do nasty things to portfolios soon. Still, Blodget isn't selling his stocks or suggesting that others do so. But at the very least, investors "should be mentally prepared for the possibility of a major pullback and lousy long-term returns. " Click for the full analysis. (Read more stock market stories.)

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