The market is fighting fiercely to ignore a carousel of concerns ranging from the expiration of the debt ceiling to the potential contagion of a burst of over-indebted Chinese real estate development Evergrande.
But any recovery from recent lows may prove short-lived, says Binky Chadha, chief market strategist at Deutsche Bank. The seasoned strategist reiterated his call for a deep stock market correction on Thursday.
“I would say this [week’s] the sale was largely a pullback of garden varieties rather than the kind of pullback that we’ve been – and continue to seek – essentially, ”Chadha said on Yahoo Finance Live.
The Dow Jones Industrial Average hit over 600 points on Monday as investors were hit by news of a possible default by Evergrande. Significant selling pressure was also seen on the S&P 500 and Nasdaq Composite, while the VIX volatility index hit levels not seen since May.
Stocks, however, entered the scene with an impressive rally from lows reached late in Monday’s session. The rebound from this week’s lows continued through Thursday, with investors taking comfort in a somewhat dovish Federal Reserve meeting.
Chadha argues that the conditions remain in place for a general market reset, as economic growth peaks and stock valuations remain elevated.
“This call [on the markets] is based on the idea that growth peaks, ”explains Chadha. “As perceptions that growth rates are peaking, the market is tempted to correct by an average of 8.5%. Our call is therefore for a greater retreat. “
As with any market, there is a wide range of views.
Canaccord Genuity chief market strategist Tony Dwyer told Yahoo Finance Live that the market could very well climb at the end of the year after going through its current tough times. Cyclical stocks look attractive to Dwyer.
“I think we could push lower [near-term], but regardless of all that, I think we’ll have a similar rally to 2004 and 2010 in the market until the end of the year, mostly in cyclicals, ”Dwyer said.
Brian Sozzi is an editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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