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Additional 20% decline in US stocks possible: IMF director

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Oct 13, 2022 - 01:58 AM

ANKARA (AA) – It is “certainly possible” that there could be an additional 20% decline in the US stock market, according to Tobias Adrian, director of monetary and capital markets at the International Monetary Fund (IMF).

Rising interest rates by central banks and future expectations of low earnings by companies are the main reasons behind the current sell-off in the market, Adrian told CNBC during the IMF-World Bank annual meeting Tuesday in Washington, D.C.

Adrian said the market sentiment and risk premia, which is the amount by which the return of a risky asset is expected to outperform the known return on a risk-free asset, have so far held up “pretty well” that lead to an “orderly tightening.”

Major indices in the US stock market have plummeted for months as the Federal Reserve has increased its benchmark interest rate by a total of 300 points since March to tame inflation that is hovering around its highest level in more than four decades.

While the S&P 500 has declined around 25% since the beginning of 2022, the Nasdaq lost more than 30% and fell to its lowest since September 2020.

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