Bank of America analyst Stephen Suttmeier is warning of a “deeper drawdown” in stocks before the contentious presidential election which could result in a 5 percent dip.
"The worst three-month period of the year happens to be August through October," Suttmeier recently told CNBC. He noted that this weakness occurs in both a traditional market as well as during presidential election cycles. "What we are seeing right now is nothing unusual."
However, it's what he is seeing in one obscure indicator that has him anticipating a "deeper drawdown" in stocks, CNBC explained.
"The risk is that a deeply overbought or tactically complacent VXV/VIX ratio, along with a lack of fear in the put/call ratios, limits upside and suggests some unfinished business to the downside in stocks," said Suttmeier.
"The risk is that a deeply overbought or tactically complacent VXV/VIX ratio, along with a lack of fear in the put/call ratios, limits upside and suggests some unfinished business to the downside in stocks," he said.
Suttmeier said investors should buy during the tumble as he predicts the S&P to rebound to 2,300. It closed Thursday at 2151.13.
"The good news is that we are getting closer to the time of the year when the seasonal mantra shifts from 'sell in May and go away' to 'buy in October and stay,'" he said.
Elsewhere, respected investment icon Marc Faber explains that small investors can still make money in a volatile and uncertain market, but not by buying stocks and bonds.
“If I compare their prices to stocks and real estate, I think the precious metals is where I still find value," he told India's Business Standard. "There are exceptions to the rule that asset prices are grossly inflated. But if we were to talk about asset price inflation in general, everything will go down in value - be it bonds, equities and collectables. But precious metals will fall less than equities,” said Faber, editor of the Gloom, Boom & Doom Report.
“It doesn't matter whether you invest now or later, I think the return expectations are low. One will not make a lot of money by buying stocks and bonds. We also don't know how the world will look like in five years from how - how crazy and insane the central bankers will become,” said the man widely known as "Dr. Doom" because of his frequent bearish - and apocalyptic - market prophecies.
“Worldwide, most asset prices are grossly inflated. An asset class that became inexpensive at the end of last year was precious metals - gold, silver and platinum. While they have rallied nearly 100% since then, I think they are still reasonably attractive,” he explained.
“I believe we are moving into a period where small investors have a huge opportunity to make money, as they have a window to capitalize and take advantage of market inefficiency. Index funds mostly buy large companies," said Faber, credited for advising his clients to get out of the stock market before the October 1987 crash.
"As a result, it leads to undervaluation of smaller companies, and that's where I see an opportunity for the individual investors.”
(Newsmax wire services contributed to this report).
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