Nomura's strategist: S&P 500 will likely fall another 10-15%, will prompt Fed to launch stimulus
Nomura's strategist, Bob Janjuah, believes that the S&P 500 may fall another 10 to 15 percent in the near term, causing the U.S. Federal Reserve to launch more stimulus policies next year.
In an interview with CNBC, Janjuah said that when the gauge was up at 21,000 points, he thought there would be 1,700 at some point in late third quarter - early fourth quarter.
"We made some progress towards that target, I think there's a bit more to go."
On Monday the S&P 500 - an important measure of U.S. stocks - closed at 1,972 points, a key level some analysts are watching for
support. The gauge has just suffered its worst month since May 2012 on
the backdrop of China's slowdown and concerns over whether the Fed will
raise interest rates.
Janjuah, who in early July suggested that a "flash crash" was approaching, said that his prediction was now in danger of being materialized, although he confessed that he was a little inaccurate with the timing of the drop in stocks and the reaction from U.S. Treasury yields.
He now estimates that a further selloff for the S&P is
"likely" and says that the benchmark 10-year Treasury yield could touch
roughly 1.80 percent in the next six weeks with investors rushing to
bonds as a shelter asset. The yield on the 10-year note is currently at about 2.17 percent.
The two themes dominating the markets will be China and the Fed, Janjuah says. Beijing has "lost control" over their own stock
market, the strategist says, and other global central banks - like the Bank of Japan - will keep pouring more liquidity into their economies to
account for slowing growth in the world's second largest economy.
"Globally there's not enough growth, there's way too
much capacity and we've hidden that gap with this thing called liquidity
- actually liquidity is debt," he said.
"The workers of the world have no pricing power, without pricing power you cannot get a sustained cycle of inflation. And a world where we have got excess capacity and not enough demand, that's deflation."
However, Janjuah has already made sullen predictions which failed to come true. In November 2013, he said that the
end of 2013 till the end of the first quarter of 2014 would be a buying
window followed by a 25-50 percent sell-off over the last three quarters
of 2014 – a forecast that was not fulfilled.
