In a note to investors about the "ugly" month of February that saw a 10 per cent correction in US equities, Principal Global Investors said the recovery could be as long as two months away.
Principal chief global economist Bob Baur said the "huge downdraft" in early February – a peak to trough plunge of 12.2 per cent on the S&P 500 Index over 10 trading days – was "dreadfully, wickedly fast and far".
"As noted two weeks ago, it was triggered by faster-than-expected wage growth in January, accentuated by volatility sellers trying to limit their losses; but, the fundamentals of rising interest rates implied the correction was waiting to happen," Mr Baur said.
Principal flagged to the market on 26 January that it was being cautious and "taking a few more chips of[f] the portfolio table".
However, the current correction might not end for "a month or two" as markets adjust to higher yields, he said.
There could be "another wave of selling" if long-term US Treasury yields breach the 3-per cent mark (US 10-year yields were 2.905 per cent at the time of writing).
"If yields surpassing [sic] the early 2014 high [of 3 per cent,] that could take the S&P 500 Index back to its earlier February low or a bit beyond," Mr Baur said.
But if a further correction happens, it may be good for investors to put their cash back to work, he said.
"World economic momentum is still quite strong even if it climaxed in the Eurozone this quarter and earlier in China and Japan," Mr Baur said.
"The extra capital spending induced by the tax package will keep U.S. growth at the top of its range likely for several quarters yet.
"The [US Federal Reserve] will still be accommodative even if the committee raises rates two or three times in 2018. Profit growth will be excellent and long-term interest rates should stabilise before too long.
"All this could generate a nice, late[-]inning rally in the long investment cycle that began in the United States in March 2009," Mr Baur said.
FASEA appoints new chief executive
David Murray commences new role as AMP chairman
ANZ names new group treasurer
Super shouldn’t be a lottery
Can infrastructure equities cope with rising rates?
Is this as good as it gets?