Stocks are already down ~7%, and Cowen explains why this correction was expected and what could happen next.
Key Points
Key Highlights:
- The drop was predicted earlier, mainly because stocks started weakening vs gold, a key warning signal.
- Historically, when stocks break down against gold, it often leads to recessions or deeper corrections.
- A 10% drop is normal, but this time is different because of late-cycle conditions and liquidity tightening.
- The labor market is weakening slowly, but stock declines usually come first, layoffs follow later.
- Midterm years are typically the weakest for stocks, with more downside into Q3–Q4.
- Two possible scenarios:
Key Highlights:
- Healthy reset → drop, bounce, then find a bottom later this year
- Worse scenario → bounce back to highs, then a bigger crash later
Final Takeaway
The correction is likely not over yet. A ~10% drop is expected, and how the market reacts after that will determine if this stays a normal pullback or turns into something bigger.
