Bank: Stocks going nowhere but down from here

French lender Societe Generale warns that rising bond yields could spark a market correction.

By MSN Money Partner Nov 11, 2013 1:19PM

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.

"Rising bond yields during period of economic recovery are not necessarily bad for equities. However, at a time when earnings momentum remains weak and the consensus earnings growth estimate is expected to moderate, rising bond yields could be a catalyst for a U.S. equity market correction," a strategy team led by Alain Bokobza at Societe Generale, said in a research note on Friday.


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.Image: Arrow Down (© Kyu Oh/Photodisc/Getty Images)


"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.


More from CNBC


84Comments
Nov 11, 2013 1:36PM
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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.

Nov 11, 2013 2:56PM
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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.

Nov 11, 2013 2:12PM
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Yeah, but this time the public has fair warnings, not like 2008...we are at a top and there will be a correction...the eltie and bankers are telling us "right now" before they pull the drain plug....and start the market shearing. There's no reason for Joe and Jan public to be invested in equities ...they need to move thier 401k money to the sidelines as fast a possibly. After the steep correction...they can jump back in and ride the wealth trail.
Nov 11, 2013 2:20PM
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., and we are supposed to believe a bank!!!!   This is a blatant attempt to manipulate the market.
Nov 11, 2013 2:23PM
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Read the last two paragraphs and you get an idea of what these banks know... as much as you.
Nov 11, 2013 2:59PM
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There is a constant stream of conflicting data and in almost every case there are downward revisions to follow. The Labor Participation Rate tumbled down to 62.8%, the lowest since March 1978. Older folks are working longer, delaying their retirement and somehow the latest report on jobs contradicts the data on Labor Participation.
Nov 11, 2013 2:50PM
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The banks like Wall street are thieves, believe what you will. There was a lot of talk about the October 2008 TARP bailout being paid back but little talk about the real bail out, the almost 8 trillion one. To encourage banks to lend again Bush and the Fed allowed them to borrow unlimited money from central banks at near zero interest but instead of lending that money they used it to buy treasuries paying 3.7% interest. We paid them billions to borrow back our own money. They repaid TARP loans with our own money. Do a search real bail out 7.7 trillion.
Nov 11, 2013 3:55PM
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Well speaking for all those working and still having no money to invest; this will not have any impact on me.  I'm still catching up like many others on being laid off for almost 2 years and living on the scraps of my 401(k) and IRA that were wiped out in the last "correction" AKA "Depression". I, like many other "middle class" American's, have no money left to lose and these "corrections" in the market place will now start having and effect on the 1% who still have money to invest.  Maybe that's when this country will start investing in American jobs, instead of overseas.  If we have no jobs, we have no money and we can not consume.  If we have no consumption, we don't need a market.  Basic economics people, not brain surgery here!
Nov 11, 2013 3:23PM
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THE SMART MONEY IS HEADING OUT WHILE THE INDIVIDUAL INVESTORS ARE STARTING TO GET IN THE MARKET, A SIGN OF A NEAR END. THE FEDS CAN ONLY PUMP THE MARKET SO MUCH AND MARKET INTEREST RATES WILL MAKE THE FEDS USELESS ANY MORE. I FEEL SORRY FOR ANYONE WHO IS STILL RISKING THEIR MONEY IN THE MARKET ANYMORE. BECAUSE OF THE FED, THIS NEXT MARKET DROP WILL BE HUGE
Nov 11, 2013 3:22PM
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Cash is King! Enough said. These guys on CNBC are a bunch of BS artists.
Nov 11, 2013 3:01PM
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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?

Nov 11, 2013 3:38PM
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You know where French banks keep their money, right?  American banks.
Nov 11, 2013 3:05PM
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The French would love to see the U.S. economy weaken.  So what else is new?
Nov 11, 2013 4:14PM
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Any company worth more today than before the recession started is over valued plain and simple. There is nothing to support the markets being at all time highs when the unemployment in over 7% in the US.  Its not like these companies are making record profits like they were before the recession hit. 

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.
Nov 11, 2013 5:26PM
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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?

Nov 11, 2013 3:05PM
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MM2,

 

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!!!

Nov 11, 2013 3:37PM
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Who cares!  Keep on printing and it will be done. Much ado about nothing.  Same 'ol...so what!  You wanted a "welfare nation" and you have it.  Whoops, "those" need their checks...not a problem.  Who cares about the "underlying" inflation...if you can get "entitled" for anything.  Rather like it as defining how "stupid" a few generations are and have been.  Go...whatever it is and thinking will get food stamps too!   Stop....laughing too damn hard!
Nov 11, 2013 3:50PM
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HA! This after every commentator in the world has been bullish. Watch out little people, when you are back in they will drop it like it's hot! Cudos to those that have made money, I made a bit, but be ready to sell or just stay out.
Nov 12, 2013 7:37AM
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"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.

Nov 11, 2013 10:26PM
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Do you really trust what the banks say? They are a bunch of crooks.
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