Brace for an up to 20% plunge in US stocks as they're looking a lot like the dot-com bubble, BTIG bull Julian Emanuel says
- US stocks could tumble by 20% within the next month, long-time bull Julian Emanuel said.
- The run of record highs for major equity indexes resembles the dot-com bubble of late 1999, the BTIG strategist said.
- But investors taking a long-term approach could be rewarded eventually for buying the dips, he suggested.
The run of gains and record highs for US stock markets echoes the dot-com bubble, which could mean a correction of as much as 20% for these equities within the next month, BTIG's long-time bull Julian Emanuel told CNBC.
The S&P 500 and tech-heavy Nasdaq both closed at record highs on Monday, as the benchmark index hit its 53rd all-time high this year. The major indexes are heading for their seventh month of gains in a row.
"We're in a time where the impossible has really become commonplace," Emanuel said Monday on CNBC's "Trading Nation".
"If we had said inflation would be at 30-year highs and (10-year Treasury) yields would be at 1.3% while the S&P would be at this level a year ago, no one would have believed you, me, or anyone else making that claim."
US equity markets spiked during Jerome Powell's Jackson Hole speech Friday, when the chair of the Federal Reserve's words reassured investors that the central bank wouldn't begin tapering its bond buying until late 2021. The Fed has stressed it believes the currently elevated levels of US inflation are transitory.
Emanuel, chief equity and derivatives strategist at BTIG, said the price momentum in US stocks has reached a point where it has become the dominant factor for investors. It is shunting aside consideration of the near-term risks associated with the surging Delta variant, inflation, and the Fed's next steps.
He said investors may be tempted to "continue to go with it" and let sentiment sway their decisions. But he had a warning for them. "Be very much aware of the fact that if and when it reverses, the consequences could be severe," he said.
Stock market euphoria could drive the S&P 500 to hit 5,000, a 10% jump from current levels, Emanuel said. But that surge could well be followed by a pullback.
"What we don't want is for people to get so overly committed in that race to 5,000 potentially that they become uncomfortable and overexposed to equities," the BTIG strategist said.
That said, Emanuel noted the opportunities in any near-term trouble for those who invest for the long term. Those who buy the declines will benefit eventually, given stock markets always rise over a long period.
"Be mentally prepared to buy down 10%, 15% - maybe even 20% - because the long-run trend is higher and pullbacks having been bought have been rewarded all along the line," he said.
"We all know that September has a record of being a difficult month to navigate that ultimately yields to the buying opportunity in October."