Vanguard’s Davis Said Selloff Was Likely Given Frothy Markets

(Bloomberg) — Investors should not have been surprised by the steep selloff in the stock market over the past two days, said Joseph Davis, chief economist at Vanguard Group.

“The past two days are not the anomaly,” said Davis in a telephone interview on Monday. “What was an anomaly was the straight upward path of the market over the past year.”

The equity selloff accelerated Monday amid rising concern that inflation will push interest rates higher. U.S. stocks fell the most in 6 1/2 years. Vanguard, which manages $4.9 trillion, took its most cautious outlook in a decade in a December report. It cited concerns that 2018 would bring more volatility, inflation and a stock market performance that likely would not measure up to those of the past five years.

Davis, in the interview, said recent reports of stronger growth and rising wages may have caught the market off guard. “What we are seeing is some unraveling of the complacency and some of the frothy returns we have seen since the beginning of the year,” he said.

Davis said he was not bearish about the economy or the stock market and said he still expects modestly positive equity performance for 2018.

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