Two weeks ago, volatility hit markets, with the Dow dropping 1,000 points in a single day, twice. Stock prices have climbed back a bit. But some Wall Street veterans warn that there could be more volatility ahead.
Steve Schwarzman, the CEO of Blackstone (BX), isn’t all that concerned about the recent market moves because he believes the market has been vulnerable to corrections.
“If the developed world’s economies are going up 2.5% to 3% a year, that’s not that much. It’s not terrible, but you know it’s what it is. And you have performance in January of the equity markets up around 7%, something like that,” Schwarzman told Yahoo Finance. ” If you had that same performance for twelve months at roughly 7%, I mean you’re you’ve got 80% performance in a year in an economy growing 2.5% to 3% in the developed world does that make any sense? No.”
In other words, the stock market looks like it’s gotten way ahead of the economy. And so, you can expect some down moves along the way.
“So the journey in between is going to have a bunch of downs, it’s going to have a bunch of ups, or the alternative is complete boredom for eleven months just stay more or less the same. Nothing ever stays just the same when it involves human beings, external factors, and so it didn’t strike me at all odd.”
Instead of looking at the markets, what’s important is to look at what’s happening in the economies around the world.
“The emerging markets are doing great. Europe is doing much better than it had been. [The] U.S. has got this whole new regime with new tax policy and it’s going to do great relative to what it was doing. I mean we’ll probably grow 75 to 100% more than we were doing in the previous eight years. And so, as you look at that, that’s what will create jobs for people, and markets will overshoot, undershoot. It’s important not to get too carried away by that.”
Earlier this month, Tony James, executive vice chairman of Blackstone, said he’s been expecting a market correction.
“As many of your audience may know, I’ve been expecting a 10 to 20% drop in the market. So, to me, this is like as expected,” James told Yahoo Finance in a recent interview. “I don’t think it’s going to be a bear market. I think it’s a correction, but I still think we’re going to see a 10% to 20% drop from the peaks and we’re only about halfway there.”
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.