What Could Go Wrong with the Stock Market?

Bloomberg interviewed a number of long-time professional investors and asked them what worries them. Things are going well now, but another crash is possible. Each identifies the factor they think could cause another deep dive in the markets.

One of Tad Rivelle’s favorite charts shows the widening gap between the value of U.S. household assets and GDP growth­—a sign the economy is heading for a fall. Prices for stocks, bonds, homes, and even art that make up total household net worth have outrun U.S. GDP growth for years. This is an unsustainable deviation, according to Rivelle, CIO at TCW Group Inc., which oversees about $200 billion.

The gulf is wider than before the bubbles that preceded two other notable recessions: the dot-com crash of 2001 and the housing crash of 2008. “Financial ­instability tends to follow periods when asset growth has been disproportionate to ­underlying measures of income,” Rivelle says. “People usually say a recession happens because consumers stopped spending. What really happens is the economy ­becomes malformed.”