CHICKEN LITTLES COME HOME TO ROOST

Fears of a stock market crash among investors are the highest since the start of the pandemic, Yale gauge shows

Jennifer Sor
Fri, August 25, 2023 

Some Wall Street investors have remained worried over the odds of a recession and a sharp sell-off in stocks.

REUTERS/Lucas Jackson

Fears of a 1987-style stock market crash are the highest since the pandemic, a survey from Yale shows.


44% of institutional investors believe a similar crash is at least 10% likely over the next six months.


That's just under levels reported in March 2020, when 51% of institutional investors feared that outcome.

Investors' fears of a stock market crash are the highest they've been since the pandemic, according to a sentiment gauge maintained by researchers at Yale University.

The US Confidence Index, an index that gauges investors' belief that the stock market has more than a 10% chance of experiencing a 1987-style stock crash, is the highest it's been since the early months of the pandemic, when the S&P 500 crashed around 30% over the course of a few weeks.

Fears of a 1987-style stock market crash are the highest since 2020, Yale's US Crash Confidence Index shows.Yale School of Management

Around 34% of individual investors believe a Black Monday-style crash has more than a 10% probability of occurring in the next six months. Meanwhile, 44% of institutional investors believe in an imminent crash of that magnitude, according to the Yale School of Management's latest survey reading. That compares to in March 2020, when 26% of individual investors and 51% of institutional investors believed in such an outcome.

A persistent number of bearish investors on Wall Street have remained worried over the odds of a recession and a sharp sell-off in stocks, despite inflation cooling and the US economy remaining resilient. That's because the Fed could keep interest rates higher for longer than markets are expecting, which raises the risk that central bankers will push the economy into a downturn.

The federal funds rate was lifted to a target range of 5.25%-5.5% in July, the highest interest rates have been since 2001. Markets are pricing in a 53% chance rates will stay at that range in December, a 39% chance rates will increase another 25 basis-points by year-end, according to the CME FedWatch tool.

Higher rates could cut into the economy's strength, especially when considering the lagged impact of the Fed's rate hikes, which kicked off in March 2022. The labor market has already begun to slow its robust growth over the past year, and Americans are now beginning to exhaust their excess savings, which has been a major buffer for the economy since the pandemic.

The New York Fed has forecasted a 66% chance the economy will tip into recession by July 2024. Stocks could tumble by at least 15%, even in event of a mild recession, according to JPMorgan strategists.