Tuesday, August 21, 2012

Nomura Analyst: S&P 500 Facing 25% Drop Before US Election

The S&P 500 is likely to fall by 20-25 percent over the next three months according to Nomura strategist Bob Janjuah, reports CNBC.

In a research note published today, Janjuah who called the recent rally for U.S. stocks said he expects investors to be back in risk-off mode until the U.S. election is over.

“I now think the correct thing to do — as I also said in April and June — is to prepare for a serious risk-off phase between August and November…over the August to November period I am looking for the S&P 500  to trade off down from around 1400…by 20 to 25 percent...to trade at or below the lows of 2011.”

Those hoping for a big bazooka from the Fed or the European Central Bank before December will be disappointed, he said, according to CNBC.

We expect “Mr Bernanke to disappoint markets at Jackson Hole next week, and also because we are confident that markets will soon discover that neither the ECB nor Eurozone politicians will actually be able to deliver on their promises,” Janjuah said.

“For now we are happy to risk 30 S&P points against us, in order to potentially pick up 300 S&P points in our favor.”

Janjuah may be correct here, not only for the reasons he states but because the Federal Reserve is currently maintaining a very slow monetary growth policy. The slow growth in M2 (around 2.5%--13 week annualized) over the last three months, relative double digit growth late last year, suggests that the current capital structure can not be sustained. Watch out below.

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