Last year, the S&P 500 posted a record year for dividends as buybacks post a 16.3 percent increase. It has been a while since S&P 500 experienced a significant hiccup – it hasn’t undergone a 10 percent correction since 2011. The S&P 500 is just about one percent under its all-time high. Indeed, it’s high times for the S&P 500 just like the Nasdaq.
A stock correction could happen, though, says former Dallas Federal Reserve President Richard Fisher. He told CNBC on Friday that an enormous correction could take place in the equity market because investors have become “lazy” due to their dependence on the United States central bank.
It’s no secret that a bulk of investors have relied on the Fed for monthly stimulus injections (quantitative easing) and near zero percent interest rates. Fisher warned that the market should start getting prepared for the Fed to introduce a “normalization of policy,” which he doesn’t know when would happen.
With that being said, Fisher does see a “substantial magnitude” unfolding, adding that the Fed shouldn’t react to such a circumstance.
“I’ve argued that at the [Fed] table because after all this market’s hyper-overpriced in my view, and these interest rates are abnormally low, engineered by the Fed. But that’s because nobody else is doing anything on the fiscal policy side and we had to act.”
Fisher’s comments come as St. Louis Federal Reserve President James Bullard told an audience in London this week that a “violent reaction” could occur amid a disconnect between the market and the central bank over benchmark rates. He also urged policymakers to be aware of inflation as the economy improves.
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