The risks from a big stock or bond market drop are high and rising, government watchdog says
Risks “are high and rising” from the potential for a sudden drop in the stock and bond markets, according to the Office of Financial Research, the government agency tasked with looking for threats to the economy from the financial sector.
Some investors have been financing long-term asset with short-term loans and therefore a correction could trigger financial instability, according to the OFR annual report issued Tuesday.
The report highlighted vulnerabilities to cybersecurity incidents, obstacles to resolving failing systemically important financial institutions and structural changes in markets and industry as three key threats to the financial system.
Stock valuations are high by historical standards, the report noted. The cyclically adjusted price-to-earnings ratio of the S&P 500 is at its 97th percentile relative to the last 130 years.
https://www.marketwatch.com/story/the-risks-from-a-big-stock-or-bond-market-drop-are-high-and-rising-government-watchdog-says-2017-12-05