Stocks have had been on a wild ride lately.
As fears about the coronavirus rocked global markets, the S&P 500 ended last week down roughly 0.6%, while the Dow closed the week down 1% and the Nasdaq ended the week right around the flatline.
The major indexes bounced back on Monday. And by Wednesday’s close, the Dow had added 483 points, and both the S&P 500 and Nasdaq had hit new all-time highs.
Now BTIG’s Julian Emanuel has a warning for investors: more wild market swings are on the way.
“The market is a wild animal right now,” Emanuel, head of equities and derivatives strategy for BTIG, said. “It could go up huge or it could go down huge.”
And that’s not the worst of it. Emanuel believes the conditions are ripe for sustained volatility that could result in a 15% fall for the market.
“There’s a lot of headline risk out there, and we think markets are going to really chop around,” Emanuel said. “Investors need to get their mindset geared more to the types of moves that they saw in 2018.”
For anyone who keeps an eye on the market, 2018 will be a hard year to forget. The year started with a new all-time high at the end of January followed by a correction in February. Then stocks surged higher before slumping in October and falling back into correction territory on the worst Christmas Eve trading day in recent memory.
“We got record levels of overbought in the market [last month],” Emanuel added. “It’s reasonable to expect more volatility.”
Emanuel sees downside risks from both the pressure on the global growth outlook from the coronavirus outbreak and the election primary season.
“With all this incoming news, when the market becomes more volatile, as we believe it will become, you could get a day’s worth of price action in 30 minutes, several times a day,” Emanuel continued.
“We’re thinking a market pullback on the order of 7 or 8% in total,” the strategist said. “If the headlines deteriorate you could overshoot that.”
But all the headline risks aside, Emanuel says now isn’t the time to turn bearish as we’re seeing sustainable economic and earnings growth over the long-term, and suggests a pullback in the near-term will be a buying opportunity.
“We want people to think about being a buyer down 10% to 15% as opposed to hedging once the barn door has already opened,” Emanuel concluded.