Geopolitical shocks have historically led to sharp pullbacks, with the S&P 500 declining 6% or even suffering a correction, analysts say.
Bank of America Merrill Lynch said the S&P 500 has the tendency to dip 6% to 7% on geopolitical shocks, but the firm believes most of the loss will be recovered in the subsequent three months.
Such geopolitical shocks have historically led to sharp pullbacks in stocks with the S&P 500 declining 6% to 7% on average in the wake of the events, according to Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch. Subramanian researched past shocks such as Brexit and Argentina's debt collapse.
Some on Wall Street see a deeper sell-off on the horizon, perhaps as much as 10% correction. Stocks had gone too high, too fast in its year-end 2019 rally, creating an overbought environment that's vulnerable to a deeper pullback, they said.
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