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
Is the New York Stock Exchange poised for a correction?   (AP Photo/Mark Lennihan, File)

(Newser) – 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.

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Showing 3 of 39 comments
Aug 9, 2014 9:44 AM CDT
For 35 years I have tracked/followed the markets. The increase lately, is almost unprecedented. I think that like alot of farm land out there the market is extremely high and overpriced. The nonsense obout PE and profits are things that can adjusted so easily. After the flashcrash I really had concerns. It means all large traders can leave the market in basically a "flash" with computer mainframe trading. The regular investor does not have these advantages. There have been several books / articles out on this subject.
Aug 4, 2014 5:06 PM CDT
In every 20 year period in the stock market's history.....ya made money. It ain't for short term play.
Aug 3, 2014 1:28 AM CDT
Not new, so why are we not expecting it? Anyone looking long term at stocks can see the profit takers, brokers, banks, etc. run the stock values up with other people's money and then sell. They then wait for or cause a drop to buy at a lower price. Count on it.