Bull Market in U.S. Equities to End in 2013, UBS Says

The bull market in U.S. equities that began in 2009 may end this year, followed by a drop of as much as 30 percent in the Standard & Poor’s 500 Index by next year, according to technical analysts at UBS AG.

The S&P 500 may gain 7.4 percent to as high as 1,570 forming a top for the 116 percent rally from March 2009 in late summer this year, Michael Riesner and Marc Mueller in Zurich wrote in a report yesterday. A “cyclical” bear market will then follow, with the gauge dropping as low as 1,100 by 2014, they added. The measure fell 0.3 percent to 1,461.89 yesterday.

“The March 2009 cyclical bull market is moving into a mature stage and in this context, we see the S&P 500 and risk assets moving into a major top in 2013, followed by a new cyclical bear into 2014,” the analysts wrote in the note.

They said the benchmark gauge began a long-term bearish pattern in 2000 which, in turn, consisted of medium-term, or cyclical, ups and downs. One part of this was the increase from 2009, which is now looking to reverse based on a triangular pattern called the rising wedge forming on its price chart, the analysts said.

The ensuing slump will not only end the current rally, it will also complete the larger bearish trend that began at the turn of the millennium, Riesner and Mueller wrote. Further, it will set the stage for the start of a similarly long-term bullish pattern about two years from now, they added.

Technical analysts describe a structural pattern as one that lasts more than a decade and a cyclical trend as one that goes on for several months to a few years.

Turning Point

U.S. equities are “moving into the ultimate endgame of their structural bear market, which implies that the second half of the decade should be much more bullish for equities based on a new mega trend, which is selling bonds and commodities versus buying equities,” the analysts said.

Riesner and Mueller advised investors to buy U.S. stocks in November 2011, saying they expected a “lasting bounce” in the S&P 500. The measure advanced 14 percent in the following rally through April 2, 2012.

Still, the analysts predicted in June the equity benchmark would decline more than 5 percent by the end of the following month before rebounding. The gauge added 5 percent in that time.

The S&P 500 gained 13 percent in 2012, after closing little changed in the previous year.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

Before it's here, it's on the Bloomberg Terminal.