Stock traders buckle up - the market is set for as much as a 40% plunge in the next two to three years, essentially wiping out the last two year's market rally in the U.S.
That's the warning from J.P. Morgan Co-President Daniel Pinto, who in an interview with Bloomberg Television on Thursday said "we know there will be a correction at some point." A correction is usually defined by a more than 10% drop from a recent market peak.
'It could be a deep correction. It could be between 20% to 40%, depending on the valuation.' J.P. Morgan Co-President Daniel Pinto
A 40% plunge would erase the recent gains for U.S. stocks. The S&P 500 has rallied 38% over the past two years, while the Dow Jones Industrial has soared 45% in that period.
Pinto's prediction comes as traders already are nervous over the potential fallout from President Donald Trump's planned tariffs on steel and aluminum imports.
Trump is expected to sign the tariff order - which could exempt major trading partners Canada and Mexico - on Thursday, with an announcement planned for 3:30 p.m. Eastern Time, according to media reports.
Should Trump, however, expand the trade measures, there's a risk it could further rattle traders, Pinto said.
"We are at an ineresting time. We are 2-3 years probably until the end of the cycle and markets are going to be nervous. Nervous to anything that relates to inflation, nervous to anything that relates to growth. And I think the tariffs - if they go a lot beyond what has been announced - it is something that will concern the markets about future growth," Pinto said in the Bloomberg interview.
J.P. Morgan isn't the only investment house that has issued correction warnings lately. Fellow Wall Street bank Goldman Sachs said a spike in 10-year U.S. Treasury yields could cause a 20% to 25% drop in stock prices by the end of the year, while Scott Minerd, global chief investment officer at Guggenheim Partners, warned that the current market mood is similar to 1987, when the market crashed.