(MarketWatch) Nomura analyst Masanari Takada earlier this month warned of a “Lehman-like” plunge in the stock market. On Monday, he gave some urgency to that warning.
‘The U.S. stock market especially is facing its greatest test of the year.’
Bearish sentiment currently correlates well with sentiment before the collapse of investment bank Lehman Brothers in 2008, Takada argues. So investors should prepare for carnage in the stock market due to “panic-selling by fundamentals-oriented investors and systematic selling by trend-following technical investors.”
Takada told investors in a Monday note on that stock market sentiment hasn’t improved from when he first issued his bearish macro take, which CNBC cites as the most pessimistic on Wall Street.
“The correlation between sentiment then and now remains quite high,” Takada said, referring to the Lehman collapse. “Even the passing risk-on phase after the initial shock of the yield curve inversion (this month)... and the risk-off mood that struck on 23 August neatly track the pattern recorded in 2008.”
Also of note, the week before the U.S. Labor Day holiday weekend tends to have low trading volume, which can lead to wider swings in the market.
“The continued liquidation of long positions in equities by trend-chasing investors could convince one global macro hedge fund after another that now is the time to start paring longs,” Takada wrote.
Earlier this month, the Dow suffered its worst day of the year, losing 800 points as the yield-curve inversion triggered a rush of selling.
No Lehman-like moment for U.S. stocks Tuesday, but they did reverse course with the blue chips off triple-digits in afternoon trades.
