Stocks are overvalued and could easily fall 50 percent, said Kenneth Courtis, former vice chairman of Goldman Sachs now chairman of Next Capital Partners.
With inflation subdued, soaring budget deficits will have to be financed through a steepening yield curve, he told CNBC.
“But a steep yield curve plays into the dynamic of maybe slower growth, because it’s going to be more expensive for firms to finance,” he said. “It’s going to be more expensive to refinance housing. Mortgages are going to be more expensive.”
As a result, “The market could react over the next weeks by saying we’ve been too optimistic. Now we have to adjust that and be more realistic,” Courtis said.
Given the market’s 43 percent surge to its high June 11 from its low March 6, “it wouldn’t be all that surprising to see a correction of 50 percent,” he said.
“Is this the beginning of the correction? It could be,” he said. But, “I doubt it. I think we have more room on the upside ahead of us before we see the correction.”
Still, Courtis said, “All the signs are there that tell me investors should be a lot more cautious today than they were six weeks or two months ago.”
Others are bearish, too.
“The rebound got ahead of the fundamentals, so I’m not surprised to see some of the air come out of this,’’ Jim Dunigan, chief investment officer for PNC Bank, told The Wall Street Journal.
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