The market is fighting hard to shrug off a carousel of concerns ranging from an expiring debt ceiling to potential contagion from a bust of overly-indebted China real estate development Evergrande.
But any rally off the recent lows may prove short-lived, contends Binky Chadha, Deutsche Bank chief markets strategist. The veteran strategist reiterated his call for a deep stock market correction on Thursday.
“I would say this [week’s] sell-off was very much a garden variety pullback rather than the kind of pullback that we have been — and we continue to — basically look for,” Chadha said on Yahoo Finance Live.
The Dow Jones Industrial Average tanked more than 600 points on Monday as investors were hit with news of a potential debt default by Evergrande. Significant selling pressure was also seen on the S&P 500 and Nasdaq Composite, while the VIX volatility index spiked to levels not touched since May.
Stocks, however, have gone onto stage an impressive rally off the lows hit late in the session on Monday. The bounce-back from this week’s lows has continued into Thursday, with investors taking solace in a somewhat dovish Federal Reserve meeting.
Chadha argues that the conditions remain in place for a market reset in large because economic growth is peaking and stock valuations remain elevated.
“That call [on the markets] is based on the view that growth is peaking,” Chadha explains. “As perceptions that growth rates are peaking, the market is tempted to correct by an average of 8.5%. So our call is for a more significant pullback.”
As with any market, there is a wide range of views.
Canaccord Genuity Chief Markets Strategist Tony Dwyer tells Yahoo Finance Live the market could very well climb into year-end after getting through its current rough patch. Cyclical stocks look attractive to Dwyer.
“I think we could have a push lower [near-term], but regardless of all of that, I think we’ll have a similar to 2004- and 2010-like run back up in the market into year-end, predominantly in the cyclicals,” Dwyer said.
