CITI: This Rally Is Just Like The Ones That Came Right Before The 2000 And 2007 Highs
Jan 17, 2013, 23:47 IST
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Fitzpatrick was just on CNBC this afternoon, and he laid out an extremely bearish thesis on the stock market.
The current market rally reminds the Citi analyst of the final rallies into the market tops of both 2000 and 2007 – and he sees stocks entering a bear market sometime soon.
Fitzpatrick told CNBC:
I think in the short term, we still a little bit of legs here. If you look at the S&P 500 – we've just moved to this new high above 1475 – it's actually very similar to the way we traded into the highs in 2007 and 2000. So, I wouldn't be surprised that there is a little bit of legs here – maybe even up toward 1495 – but what there isn't is momentum. Most of the momentum came in the first move up from last year, and we're seeing a loss of momentum here similar to what we saw there. Also, we're seeing in the big picture, in the overlays we look at, our favorite overlays on the Dow Jones, that we are in and around the levels that we believe we are going to peak out in. So, while there is a little bit left to the top side in the near term, we're still on the same page we have been for the last three months or so, which is that we're going to peak out around these levels and see a high-to-low down move probably in excess of 20 percent. The CNBC anchors pressed Fitzpatrick on all of the positive signs we're seeing in the U.S. economy – doesn't that run counter to his thesis? Fitzpatrick sees it differently. He replied: If you look at some of the positive signs that have come, it depends on the starting point. Housing looks good, unless you compare it to where we were in the 1970s, or where we were at the peak. The equity market looks great, up 120 percent if you compare it to 2009 – but if you compare it to 1999, we're unchanged, and we're below the 2000 and 2007 highs. The economy probably barely grew 1 percent in the fourth quarter. We have a situation where it's looking like it could be quite sluggish with the tax dynamics and the debt dynamics in the first quarter. The overall picture is that we're up 5 points on the S&P 500 since September – since we've had QE3, or QE-infinity as we call it, as well as the Fed indicating they were going to target unemployment. So, to us, it really feels like we're in the stratosphere without any oxygen left in this move. Finally, CNBC asked Fitzpatrick about the so-called "central bank put" that world central bankers have given markets by committing to open-ended quantitative easing and ultra-low rates for years to come. Fitzpatrick doesn't think investors should put so much faith in that "put." He told CNBC: They are keeping the put under the market, but I think we should respect history. If we look back over history, we constantly find that if what holds the market up is interference, if what holds the markets up is a policy specifically geared toward creating those moves, and you don't get the underlying sustainable dynamic and the underlying economic pickup, then it can hold it up for a period of time, but the market will eventually run its own way. Let's look in perspective. Since 2009, we've had a number of double-digit down moves, including the 22 percent move down in 2010, and two close-to-10-percent moves down last year. So, I think we sometimes have to divorce the underlying equity market from the underlying economy, and in that instance I think, at this point in time, the only thing that's really driving the market up has been the constant actions by the central banks, as you've said. Wall Street has been murmuring about a selloff sometime in the first quarter. Most view it as a healthy correction after the recent rally. However, Fitzpatrick's call that stocks are about to enter a bear market is decidedly more bearish.