Experts sound the alarm! Two major factors may lead to a "healthy correction" in the U.S. stock market

According to Zhitong Finance, in the environment of high valuations in the U.S. stock market, one of two "catalysts" may lead to a market correction. Brian Arcese, portfolio manager at Singapore's Foord Asset Management, stated that the U.S. stock market has been "expensive for a while" — the S&P 500 index has risen about 23% year-to-date. Its price-to-earnings ratio exceeds 27 times, and some say it appears too expensive by any standard. According to data released on October 30, U.S. GDP growth in the third quarter was below expectations. Data released on November 13 showed that the U.S. inflation rate rose to 2.6% in October, in line with expectations. In an interview this week, he said, "We do believe that a correction is healthy, but you need some type of catalyst for that to happen. I think this could be one of two scenarios. We see U.S. economic growth slowing. (It) is still healthy, but at a slow pace, right? That could be a catalyst. If the economy continues to slow down, and if we see inflation rise again, that could be a catalyst." Arcese noted that a slowdown in earnings growth could also lead to a correction in a high-expectation environment. He said, "If we look at corporate earnings expectations for next year, even excluding the two sectors with particularly high growth, IT and communication services, a growth of 10% to 12% is expected, which is relatively high compared to history." Goldman Sachs also predicted in a report last week that the company's earnings would grow by 11% by 2025. Arcese stated, "If you have high expectations combined with high valuations, then if you do see earnings growth start to slow down, or expectations begin to decline, that could become a catalyst for a correction." Arcese mentioned that factors such as U.S. GDP growth, corporate earnings growth, as well as declining inflation and interest rates constitute a relatively rare combination. He said, "These factors coming together don't happen very often, right? This is very constructive for the stock market, and it's clearly what we are seeing, and the reason the stock market continues to hit new highs. We believe a correction is beneficial." Regarding specific sectors, Arcese indicated that utilities are an industry that has not reflected growth. He said, "Compared to before, they are more expensive, but... their prices are still below market prices." He pointed out that SSE Plc and Edison International (EIX.US) are stocks held by Foord Asset Management. Arcese mentioned that the increase in data centers and the development of artificial intelligence require more electricity, which means growth is "returning." He said, "At the same time, regulated utility companies need to invest heavily in electricity networks for transmission and distribution, all of which can yield returns."