RBC: The Risk Of A Stock Market Correction Is High, But Any Decline Should Be Modest

Myles Zyblock, the Chief Institutional Strategist for RBC Capital Markets, warns that stocks could soon sell off.  He notes that RBC’s economic surprise index (similar to Citi’s Economic Surprise Index) is at a high and is turning, which is providing resistance to stocks.

But none of this is reason for panic.  From Zyblock’s note to clients:

Correction risks have increased, but we expect a pullback to be relatively shallow and short-lived. The world economy is turning up and is being led, in large part, by much better forward-looking U.S. data. At the same time, global central banks are dovish and this alone should maintain a relatively high floor under share prices.

Among other things, Zyblock notes that most of the world’s manufacturing PMIs are signaling expansion.  Furthermore, many of the large regions with weak PMI’s have shown month-over-month improvements in January.

Here’s a chart from RBC that makes it easier to see how PMIs are both improving and signaling expansion:

chart

Photo: RBC Capital Markets

SEE ALSO: Wall Street’s Sharpest Minds Predict Where Stocks Are Headed In 2012 >

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