Goldman Warns of Looming Financial Crash as Monetary Stimulus Ends

• Goldman Warns of Looming Financial Crash as Monetary Stimulus Ends
  by https://sputniknews.com/
  US financial markets might be heading for a collapse as a result of the gradual removal of accommodative monetary policies and the end of the speculative rally, which has caused a rift between stock valuations and growth in the real economy.
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  Kristian Rouz – One of the world’s largest investment banks, Goldman Sachs, says the stunning rally in US stocks might come to a dramatic end, as the artificial bull market is wearing down amid the ongoing removal of central bank stimulus. Goldman’s bear-market anticipation index has reached its pre-dot-com crash and pre-Great Recession levels, meaning a reversal in stock market dynamics is worth anticipating in the near-term.
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  The consequences of a stock-market crash in the real economy are hard to predict under current circumstances. On the one hand, a sudden decline in stock value typically hurts non-financial enterprises as they lose capitalisation and operational flexibility amid a liquidity squeeze.
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  On the other hand, given that the stock market is currently significantly overpriced, and stock valuations have far outperformed real economy expansion and are purely speculative, a financial market crash might have only limited negative consequences for the real economy.
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  In a separate report, Citibank says the chances on a market correction in the coming three months are currently at 45 percent.
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  However, Goldman’s Bear Market Index is at 67 percent currently, and the bankers say tepid inflation and structural issues are bringing the probability of a recession closer. However, if the central bank abstains from further interest-rate-hikes, a cyclical recession is likely to define the next year’s economic developments.
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  Overstretched stock valuations are the Goldman’s chief concern. The very low interest rates had driven an unprecedented stock market rally in the post-Great Recession period, and since Donald Trump was elected in November, the rally intensified due to his business-friendly attitudes and the still-loose monetary environment (despite several quarter-percent increases since December 2015).
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  Typically, the last three months of stock market expansion see gains of 7 percent, followed by a three-month 7-percent correction, with a 20-25-percent crash yielding a tumultuous 6-month period of little certainty.
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