Is a stock market correction coming? Most Americans think so

Three in four Americans believe recent stock gains are “unsustainable” and think the market may be headed for a correction, according to a new survey.

The S&P 500 is up about 13% on the year and trading near its record high. Stocks are surging on enthusiasm over the promise of AI, and on the strength of corporate sales and earnings.

But there is persistent talk of an AI bubble: an irrational runup in the prices of tech stocks fueled by unrealistic expectations for artificial intelligence.

Stock traders worry, too, about soaring oil and gas prices in the lengthening Iran war. Those fears pushed two major stock indexes into correction territory in March, when both the Dow Jones and the Nasdaq dropped 10% below recent highs.

Stocks are historically overpriced. A common yardstick, the cyclically adjusted price-to-earnings (CAPE) ratio, stands at 41.07 for the S&P 500.

The last time – indeed, the only time – the CAPE ratio ranged that high was at the peak of the dot-com bubble, in 1999-2000. The CAPE ratio also spiked in 1929, just before the Great Depression.

All of those factors, along with rising bond yields and borrowing costs, could explain why many Americans think the stock market might be due for a correction.

The new survey, published Sept. 22 by Allianz Life, found that 74% of Americans believe “recent market highs are unsustainable” and a correction may be looming.

“That’s a big number,” said Kelly LaVigne, vice president of consumer insights at Allianz Life. “We never get a response where 74% of the people say the same thing.”

Nearly two-thirds of survey respondents said they are “waiting to make financial decisions because economic conditions are too unpredictable.”

Only 27% said they are “comfortable with current market conditions and ready to invest now.”

Whether the current stock market run is sustainable is a matter for debate, investment experts said. The potential for a market correction is not.