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23 Jan, 2019 14:24

There's still a risk of full-blown bear market, warns Nobel Prize winner Robert Shiller

There's still a risk of full-blown bear market, warns Nobel Prize winner Robert Shiller

With US stock markets recovering slightly from sharp falls at the end of last year there's still a risk of a significant downward trend, according to Robert Shiller, professor of economics at Yale University.

“I'm not confident of my ability to predict, but I think there's a risk (of a bear market in 2019), yes,” he told CNBC at the World Economic Forum in Davos, Switzerland. “I categorize risks in terms of 'narratives' and this bear market narrative has taken a stronghold."

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A bear market is a general decline in the stock market over a period of time when overwhelming pessimism sparks a 20-percent drop or more from recent highs.

The Nobel Laureate who predicted the 2007-2008 financial crisis said that “There is a feeling that the stock market might be due for some deflating now because it's been a long time, and we've seen some hints of it and we haven't seen the real deflation yet.”

READ MORE: Global bear market is just getting started & ‘the worst is yet to come’ – analysts

Shiller, who won the Nobel Prize for Economics in 2013 for his work on asset prices and inefficient markets, said he didn't pay as much attention to the fundamentals driving markets but was “more interested in psychology” and popular “narratives.”

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“I'm thinking that some narratives that have been live in the recent past might come back. There was the narrative that began at the beginning of 2018. And in January and February we had a correction and 10 percent decline. And then we had another downturn between September and Christmas Eve last year, and on the S&P 500 it went down from peak to trough 19.8 percent and it almost made this classical definition of a bear market," he explained.

The economist said that the US Federal Reserve is seen as one of the fundamentals driving the market down. He described the Fed as being “kind of predictable and mild ever since (former Fed Chair) Janet Yellen.”

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