$BTC High Inflation May Trigger a 20% Correction in the U.S. Stock Market

The Royal Bank of Canada (RBC) warns that the U.S. stock market is at risk of experiencing a correction of up to 20% if inflationary pressures remain high and force the Federal Reserve to keep interest rates tight for longer. In such a scenario, the valuation of stocks—especially in the technology and growth sectors—will be very vulnerable to revaluation, similar to the market turmoil in 2022. RBC notes that investors have not yet fully priced in the risk of persistent structural inflation.

As a result, asset allocation strategies are likely to shift towards defensive sectors and hedging instruments such as gold and short-term Treasury bonds. The increase in bond yields could also add pressure to the stock market, reducing investors' risk appetite. RBC suggests that investors tighten risk management and reduce exposure to sectors that are more sensitive to high interest rates.

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