Strategist Who Called Stock Slump Says It Will Be Short-Lived

  • Peter Garnry of Saxo Bank sees market decline of up to 10%
  • But Garnry says Treasury yields are not yet in danger zone
How far we can go depends on volatility and how credit responds, Garnry says.

Peter Garnry said two weeks ago that global stocks were headed for a correction in the second half of the first quarter. While the head of equity strategy at Saxo Bank didn’t get the timing exactly, his alarm bells on the run-up in equity markets were on point.

Now, Garnry says the declines are likely to be short-lived as U.S. 10-year Treasury yields haven’t reached a worrying level.

“We believe this is a healthy correction in equity markets but also likely short-lived as the higher US 10-year yield is still not in the danger zone,” Garnry said in an e-mail. “That area is more likely in the 3.5-4.0 percent range.”

The S&P 500 Index fell 6.2 percent in two days, its biggest such decline since August 2015, after yields on 10-year Treasuries climbed to a four-year high of 2.84 percent on Friday. Markets across the globe were sucked into the selloff, with the Stoxx 600 Index declining for a six straight day on Monday and the Nikkei 225 Stock Average falling more than 10 percent from its January high, poised to enter a correction.

Still, Garnry says it’s too early to predict a bear market.

“After the correction, equity investors will likely buy into the inflation story and bid up equities once more, which is a classical late-cycle behavior which we last time saw in 2007,” he said, adding that the decline in global equities could extend to about 7 to 10 percent.

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