Tags: Ablin | stock | market | pullback

BMO's Ablin: We're in a 'Damned If You Do, Damned If You Don't' Market

By    |   Friday, 07 June 2013 08:09 AM

Expect a market drop significantly larger than declines in the 3 percent range seen so far this year, analysts told CNBC, as a stock market pullback may be imminent.

"I think the stock market broke away from fundamental values probably at the beginning of March, which means what's our downside? Seven percent from here, 10 percent from the top," Jack Ablin, CIO of BMO Private Bank, told CNBC.

Good economic news prompts speculation that the Federal Reserve will soon wind down its bond-buying program, allowing interest rates to rise.

Video:
Economist Predicts 'Unthinkable' for 2013

On the other hand, bad news prompts concern about economic fundamentals.

"This unfortunately seems like we're in a 'damned if you do, damned if you don't' market right now," Ablin said.

Approximately 35 percent of about two dozen economists surveyed by CNBC predict the Fed will start tapering bond purchases in September, while 23 percent expect tapering to start in January. Just 3.8 percent predict it will start in July, and 3.8 percent expect it in 2015 or later.

"The market decline has been coincident with a decrease in tapering expectations," BTIG chief global strategist Daniel Greenhaus told CNBC. "The current landscape is obviously incredibly confusing. Japan is a factor."

The Bank of Japan has shown a troubling lack of commitment to its bond-purchasing program, he said.

"It was a positive to have the world's third largest bank easing incredibly. Late last month they began to waiver and that was when markets peaked."

Investors withdrew $1 billion from stock mutual funds in the week ended May 29, indicating they were becoming increasingly nervous about stocks.

But before their recent slide, stocks rose 23 percent since November, Greenhaus pointed out.

"I think you had a terrific run here on the back of — among other things — certainty, and what's happened in the last few weeks is the level of certainty has given way to uncertainty," Greenhaus told CNBC.

"The S&P is a little bit above the trend channel. A move lower of 5 to 7 percent is not out of the question."

A stock market drop is in the works, agrees Barron's, noting that a weak manufacturing report from the Institute for Supply Management and comments from Fed officials about ending quantitative easing caused stocks to falter.

In addition, the recent large number of new 52-week highs combined with 52-week lows — a phenomenon called the Hindenburg Omen after the ill-fated dirigible — points to substantial instability, according to Barron's.

Video: Economist Predicts 'Unthinkable' for 2013

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Expect a market drop significantly larger than declines in the 3 percent range seen so far this year, analysts told CNBC, as a stock market pullback may be imminent.
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2013-09-07
Friday, 07 June 2013 08:09 AM
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