S&P 500, a popular benchmark for US equities, is almost at the same level as it was in April 2022. However, investors should brace for a 10% market correction over the next few weeks, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organisations. The warning from deVere Group’s Nigel Green comes as major central banks continue their battle to try and tame inflation and differing signals from stock and bond markets.

Stock markets are currently calm and enjoying a month-long rally. This suggests that confidence in the outlook for profits and dividend growth is returning. And yet core major bond markets continue to be marked by inverted yield curves, which suggest a recession is ahead.

The deVere Group CEO goes on to add: “This huge disconnect between stocks and bonds suggests that investors should brace themselves for significant volatility in global financial markets over the next few weeks. We could see a 10% correction.”

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Green continues: “The bond market is very much focused on the interest rate cycle, with yield curves inverted in the US, UK and Eurozone. Longer-term lending rates are below the overnight rates set by central banks. This reflects fear that the final rounds of interest rate hikes, from the major central banks this spring and summer, may tip economies into recession.

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A half-point interest rate increase can’t be ruled out for the European Central Bank’s meeting next week, according to Executive Board member Isabel Schnabel. The US Federal Reserve is expected to increase interest rates once more at its upcoming May meeting, while the Bank of England’s chief economist has also hinted at another rate hike next month.

“Economists estimate interest rate changes take up to 18 months to have the full effect. This means monetary policymakers need to try and predict the state of the economy for up to 18 months ahead. With inflation seemingly having peaked, central banks are slowly winning the battle and officials now need to take their foot off the brake,” adds Green.

“We expect that we’re currently in the ‘calm before the storm’ phase. “That said, a market correction is a natural part of the market cycle and can present major buying opportunities for long-term investors who are willing to weather short-term volatility,” concludes Green.