Nobel winner Robert Shiller warns there is still a risk of a full-blown bear market.
"I'm not confident of my ability to predict, but I think there's a risk (of a bear market in 2019), yes," he told CNBC. "I categorize risks in terms of 'narratives' and this bear market narrative has taken a strong hold," he said.
"There is a feeling that the stock market might be due for some deflating now because it's been a long time, and we've seen some hints of it and we haven't seen the real deflation yet," he told CNBC.
Shiller, who won the Nobel Prize for Economics in 2013 for his work on asset prices and inefficient markets, said he didn't pay as much attention to fundamentals driving markets but was "more interested in psychology" and popular "narratives."
"I have this quarrel with economists about fundamentals, I'm writing a book on 'narrative economics' and think it's stories that drive markets more than fundamentals," he said.
"I'm thinking that some narratives that have been live in the recent past might come back. There was the narrative that began at the beginning of 2018. And in January and February we had a correction and 10 percent decline. And then we had another downturn between September and Christmas Eve last year, and on the S&P 500 it went down from peak to trough 19.8 percent and it almost made this classical definition of a bear market," he said.
"And I think these things weigh on people's mind and there's a sense that maybe it's finished for people who see a buy signal, or maybe it's going to complete the job and go down further."
Shiller isn't alone in warning about looming stock-market trouble.
To be sure, if Wall Street’s new-year mantra was “feel the fear and buy it anyway,” fresh economic and market anxieties are testing the bullish resolve, Bloomberg reported.
After the best start to the year since 1987, investors returned from the long weekend in a gloomy mood. The S&P 500 Index posted the biggest drop in almost three weeks on Tuesday while the Cboe Volatility Index jumped the most in a month.
For the new year rally to endure and skeptics to capitulate, money managers have to climb a mounting wall of worry -- including the durability of the economic upturn, policy paralysis, threats to corporate earnings and the interminable trade war.
“I wouldn’t think the worst is behind us,” said Ian Samson, an investment analyst at Fidelity International. “You can maybe make valuation arguments in a lot of asset classes that got really beaten up last year, but it’s hard to make fundamental arguments for things getting much better.”
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