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Cantor Fitzgerald: 4 Signs That Stocks Have Topped Out

Cantor Fitzgerald: 4 Signs That Stocks Have Topped Out
 (Dollar Photo Club)

By    |   Friday, 02 October 2015 02:04 PM

Stocks won’t break any new records this year as the signs of a market top are growing, said Peter Cecchini, chief market strategist at Cantor Fitzgerald & Co.

There may be a short-lived rally into year-end as fund managers hunt for deals and ways to boost performance, but investors need to consider four omens of longer-term weakness, he said in an Oct. 2 report obtained by Newsmax Finance.

“If our assessment is correct, we are about to get down and dirty,” he said. “Old school approaches to making money are about to work once again.” He recommended a put spread strategy to capitalize on weakness in equities.

Cecchini predicted a market slide earlier this year, including an April report that cited five reasons why it was “almost impossible to be bullish.” The S&P 500 dropped 12.4 percent from its May 21 record through August 25, the first correction of more than 10 percent in four years.

The stock benchmark has declined 6.2 percent this year to about 1,930 as of Oct. 2.

Cecchini’s 4 Signs of a Market Top
  1. Junk Bond Cancellations: High-yield debt offerings are being canceled or re-priced by investors worried about higher risks. Olin, Altice, Santander Holdings USA, CBL & Associates Properties and Westfield Corp. either canceled debt sales or modified them. Also worrying is the widening of credit spreads, the difference in yield between two bonds of similar maturity but unequal credit ratings.
  2. Company Scandals: Markets of yesteryear were rocked by scandals at Drexel Burnham Lambert, Enron, Worldcom, Qwest, Tyco, Lehman Brothers, Countrywide and Bernard L. Madoff Investment Securities. This time around, Volkswagen, Petrobras and General Motors are hurting corporate credibility.
  3. Declining Profitability: “Without strong fourth quarter earnings, it is probable that fiscal year 2015 earnings per share will slip into contraction,” Cecchini said. “We haven’t seen that since 2007 and 2008, and before that 2001.”
  4. Neutral to Tighter Monetary Policy: After the 2008 financial crisis, the Federal Reserve helped to support markets with quantitative easing, or buying government debt and mortgage-backed securities to push down interest rates and boost the money supply. But its debt holdings steadied last year as the third QE program ended. “For now, the Fed balance sheet is flattening, and over the course of this recovery, that has meant more volatility,” Cecchini said.

Cecchini said the major risk to his bearish outlook is renewed monetary stimulus from the Fed that interferes with the “invisible hand” of market forces described by economist Adam Smith.

The central bank last month held its target interest rate at a record low of near zero percent, where it's been for almost seven years.

“The recent decision to keep rates at zero illustrates how clueless the Fed is about how ineffective monetary policy will be,” Cecchini said. “We fear that the Fed may attempt to cut off that invisible hand and move us even closer to the Chinese model a fully managed economy with another full-blown QE.”

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RobWilliams
Stocks won't break any new records this year as the signs of a market top are growing, said Peter Cecchini, chief market strategist at Cantor Fitzgerald.
Cantor Fitzgerald, Peter Cecchini, market, top
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2015-04-02
Friday, 02 October 2015 02:04 PM
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