Further 20% fall in U.S. stocks ‘certainly possible,’ says IMF director

A displacement successful capitalist sentiment could spot a further 20% downside for U.S. banal markets, according to the International Monetary Fund's manager of monetary and superior markets.

IMF probe recovered that rising involvement rates and aboriginal net expectations were driving down institution valuations successful the existent marketplace downturn, Tobias Adrian told CNBC's Geoff Cutmore astatine the 2022 Annual Meetings of the International Monetary Fund and the World Bank Group successful Washington, D.C.

Sentiment and hazard premia person held up "pretty well" truthful far, starring to an "orderly tightening," helium said Tuesday.

Asked astir a recent CNBC interrogation with Jamie Dimon, successful which the JPMorgan main enforcement said the S&P 500 could easy autumn by different 20%, Adrian said it was "certainly possible."

The benchmark scale has fallen by astir 25% successful the year-to-date.

The U.S. Federal Reserve raised its funds rate to 3%-3.25%, the highest it has been since aboriginal 2008, successful September arsenic it attempts to chill 8.3% year-on-year inflation. The latest U.S. ostentation figures are owed Thursday.

"My content is that what Jamie Dimon is referring to is that determination could beryllium a displacement successful sentiment arsenic well. And that would, of course, provender backmost into economical activity," Adrian said.

"Now, arsenic for the 20% number, it's surely possible. It's not our baseline, but that is thing that is possible."

Adrian added the IMF had nary circumstantial fig for its baseline, but that it was 1 wherever fiscal conditions proceed to beryllium tightened, economical enactment slows down and markets proceed to beryllium nether pressure.

On Tuesday, the instauration published its World Economic Outlook, successful which it predicted planetary maturation volition dilatory to 2.7% adjacent year, 0.2 percent points little than its July forecast.

It besides said 2023 would consciousness similar a recession for millions astir the world, with astir a 3rd of the planetary system experiencing a contraction.

Adrian told CNBC that contempt caller volatility successful areas specified arsenic U.K. authorities bonds, the IMF's baseline continued to beryllium that planetary recognition markets stay "in an orderly manner" and would not extremity into a full-blown situation connected the standard of a "Lehman moment."

But, helium added, determination are a batch of risks to the downside.

"[Financial stableness risks] are precise elevated. They are lone higher successful times of acute crisis, specified arsenic the 2008 crisis, the 2020 Covid situation oregon the euro crisis," helium said.

"So yes, we are successful a very, precise stressed moment, we bash anticipation that we volition debar a systemic event. But the likelihood is surely elevated astatine this point."

Banks person a batch much superior and liquidity than during the 2008 crisis, erstwhile a batch of acute accent was caused by the banking system, helium noted — however, an adverse script successful emerging markets would spot 30% of banking assets undercapitalized, and vulnerabilities successful the non-bank fiscal strategy could spill into the banking system, helium warned.