Bank: Stocks going nowhere but down from here
French lender Societe Generale warns that rising bond yields could spark a market correction.
By Matt Clinch, CNBC
A rise in bond yields will pose a serious threat to the U.S. equity market at a time when earnings momentum remains weak, Societe Generale warns.
The French lender predicts that the Standard & Poor's 500 Index ($INX) will be flat "at best" for the coming quarters with a continued risk of a short-term correction.
If the U.S. Federal Reserve, as expected, starts to wind-down its bond-buying program, the price of U.S. Treasurys are expected to fall as a big source of demand drops off. This will send the yields on the bonds higher, as bond prices and yields move in the opposite direction.
SocGen expects U.S. government bond yields to approach 4 percent by December 2014. But the bank also suggests a U.S. government bond yield of between 3-3.5 percent could trigger a correction of between minus 12-22 percent for U.S. equities on the current equity risk premiums.
On Friday, yields for U.S. Treasurys rose to 2.740 percent, from 2.6018 percent late on Thursday, after unexpectedly strong job gains for October despite a partial government shutdown, suggesting resilience in the world's biggest economy.
Employers added 204,000 jobs to payrolls, the Labor Department said, sharply above expectations from economists in a Reuters poll for a gain of 125,000.
"The Fed will eventually bring tapering back on the agenda in 2014. After all, does real GDP (gross domestic product) growth of 2.8 percent in the last quarter really deserve not only zero rates but also active monetary injection?," SocGen said. "Those saying that an economic acceleration would translate into higher returns on equity are very probably wrong."
The bank's view correlates with a bearish projection from Nomura strategist Bob Janjuah last week. He said in a client note on Tuesday that he expects a 25-50 percent sell-off over the last three quarters of 2014 in global stock markets.
Steen Jakobsen, chief economist at Saxo Bank, has explained on several occasions to CNBC in recent weeks that bullish investors are "chasing the tail" of the recent equity rally, indicating that now is not the time to be risky.
The S&P 500 Index sat at 1,770 points on Friday evening, 24 percent higher it was than at the start of the year. Liquidity pumped into capital markets is seen by many as being the major reason behind this push higher for stocks.
The U.S. Federal Reserve's $85 billion-a-month asset purchases has run alongside similar programs in the U.K. and Japan. The U.K. FTSE 100 Index has added 14 percent year-to-date whilst Japan's Nikkei 225 has logged a staggering 37 percent rise despite the odd stutter.
But there are some that still predict an upside for U.S. equities. Barclays introduces a 2014 year end S&P 500 price target of 1,900 on Friday, whilst Citigroup said on Friday that equity markets around the world have got about another 13 percent to go by the end of 2014.
"Global equities aren't as cheap as they were in 2011, but that doesn't mean that they are yet especially expensive," Citigroup said in a report on Friday.
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The market has been artificially high for some time. It's inevitable that it will drop, and the losers will be the public....again.
Why are all you people believing that the stock market will crash if the fed stops printing money. Yes there maybe a down turn for a while but it will be a buying opportunity. The damn fed is in the way of jobs and economic growth in America. America should be growing at 4.5%, easy. These bastards at the fed are doing only one thing and that is making money for the top 1% and it is all speculation money.
The leadership in America is unbelievable it is a total disaster. What are we doing; we are running around chasing obamacare which was created by a lie.
Let it happened. We need to focus on our problem and that is debt and deficit.
Spend less and payoff debt. Patriot American will understand that our country future is very importance. We don't live in a perfect world. We must focus on our country not the world. They will laught at us when we become like Russia. The question is do we have a real patriotic American in Washington that can solve this problem?
Those factors alone are proof the market needs a price correction and soon. Housing prices didnt drop far enough after the housing crash, and in a lot of areas are back up to the pre-recession prices which make no sense and are unsustainable.
Merci beaucoup pour les conseils en temps opportun! Maintenant .... à qui nous sommes censés render?
Translation: Thank-you so much for the timely advice! Now....to whom are we supposed to surrender?
You're right, but MOST idiots will "want to ride a little longer", because they're too greedy. Everybody, including me, tells them to take their money and run, but do they? NO THEY DON'T!!! "We just want to ride it for a little bit more, a little longer," well after all it is their money, but I don't want to hear you people cry foul when the market does crash, and you've lost all or most of your money. I'm telling you now, an so are a lot of other people. GET THE HELL OUT OF THE MARKET, RIGHT NOW!!!! Take your money and RUN!!! don't walk, to the exit out of Wall Street. Now, people!!!
"By what standard or criterion do you judge the market to be "artificially high for some time". excluding normal cyclical fluctuations usual to any market.?"
FACTS. $700 TRILLION in derivatives caused by trades without genuine cash backing them. $4 TRILLION in QE represented, $300 TRILLION in Dark Pool monies coming from cartels and corruption. Artificially high corporate financials steering market activity without broad employment or tangible sales activity, factories, machinery, etc. There are 90 MILLION unemployed and under-employed in America alone, worldwide, the figure is in the BILLIONS. Excluding them to consolidate wealth isn't prosperity, it's terrorism and always finishes poorly for the inept, greedy and shallow.
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