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Societe Generale: Stock Market Is 'Dancing on the Rim of a Volcano'

Societe Generale: Stock Market Is 'Dancing on the Rim of a Volcano'
Olivier Le Queinec | Dreamstime

By    |   Monday, 20 November 2017 03:15 PM

Strategists at investment bank Societe Generale are warning savvy investors to watch where they walk as the stock market continues along its seemingly endless bull run.

"In a goldilocks scenario of low interest rates, abundant liquidity, stable growth and a focus on the 'good' Trump, investors continue to push asset prices, volatility and leverage to historical extremes," Alain Bokobza, head of global asset allocation at Societe Generale, in a report Monday, CNBC reported.

"Yet, a low volatility carry environment with rather extreme positioning is a dangerous combination, which we recently likened to dancing on the rim of a volcano," CNBC quoted Bokobza as saying.

There is "a growing risk that tax cuts cannot be passed in Washington, or will be more modest than expected. Such an outcome could raise the risks of a recession," Bokobza said.

Another red flag the market is raising is growth in margin debt levels among companies listed on the New York Stock Exchange, CNBC explained.

"The growth in margin debt has not reached exorbitant levels yet, as was the case just before the 2000s and 2007s market crashes," he said. "However, we expect to enter a bear equity market environment, and the sell-off may be exacerbated by margin calls being triggered," he said.

"We believe that the S&P 500 is showing an asymmetric risk/reward profile," adding that a bear market "is not so far in the distant future."

To be sure, stocks continued to climb Monday.

With no major earnings or economic data scheduled this week, stock-market trading volumes are expected to thin leading up to the Thanksgiving holiday on Thursday and an early market close on Friday, Reuters reported.

“Wall Street is looking for the next catalyst to move higher,” said Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management Co in Milwaukee, Wisconsin.

“And right now, the one that’s on the docket is tax reform. But the question is how much longer can we go higher and how much longer can the cycle last, and tax reform plays an impact in that.”

The U.S. House of Representatives passed their version of a tax bill last week. But the Senate, from which it has already faced resistance, is expected to vote on their version of the bill after Thanksgiving.

(Newsmax wire services contributed to this report).

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Strategists at investment bank Societe Generale are warning savvy investors to watch where they walk as the stock market continues along its seemingly endless bull run.
stock, market, dancing, volcano
383
2017-15-20
Monday, 20 November 2017 03:15 PM
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