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Pros Say: 5-15% Market Correction Coming

Stocks opened slightly higher on Tuesday after a report showed a rebound in housing starts from record lows. Tuesday's data were brighter: Housing starts jumped 17.2 percent in May, mostly due to a surge in multifamily construction, after sliding 12.9 percent in April. New building permits, a gauge of future building activity, rose 4 percent, the biggest gain since last June. Read and listen to what the experts had to say...

5-15% Market Correction Coming

The markets are headed towards a correction, said Hugh Johnson of Johnson Illington Advisors. "The market is ahead of itself. It is effectively overstating the strength of the recovery that's coming in the third or fourth quarter. So a 5- to 15-percent correction or decline in stock prices from current levels is what I would guess."

No Economic Recovery Yet

“The news from the economic front is still very, very patchy,” said Vasu Menon of OCBC Bank. “The economic storm is clearly receding,” but he doesn’t see an economic recovery yet. Markets were oversold in the first quarter of the year and he expects a correction soon.

Green Shoots—Weeds or Flowers?

James Tisch, CEO of Loews, said the economy is in a recovery, but it is going to be “very, very tepid.”The major problem that still exists in the economy is debt liquidation, which could take 5 to 10 more years to solve. “Normally coming out of a recession, you expect 40 to 60 percent growth year-over-year — I think we’re going to be lucky to get 1 to 2 percent growth,” he said.

Markets May Have Hit the Bottom

“The bounce back from March to yesterday reflected we’re making some sort of bottom,” said Gary Kaminsky, former managing director at Neuberger Berman. However, he said if the recovery gets pushed into 2010, the stock bounce was premature. Securitization has not returned despite government efforts and “while we are delevering, it’s going to take much longer than it has in previous downturn cycles.”

Expect More Financial Regulation

Expect more regulation than what we had before, said Michael Darda of MKM Partners. “The tricky part is not going too far and not doing it in a way that will suffocate innovation,” he said. In the meantime, he said the markets are lined up for a recoveryand, by 2010, “will be more robust than widely believed.”

Aerospace Industry Stronger in Long-Term

Nick Fothergill of Nomura said the aerospace industry is “still pretty tricky” in the next six months. But he said the industry will eventually recover. “If you’ve got a two to three-year view, this is probably the period that you should be looking,” he said.

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