Analyst Bouroudjian: Stars Aligned for 'Serious' US Stock Correction

Tuesday, 13 Aug 2013 10:48 AM

By Ronald Kessler

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Jack Bouroudjian, CEO of Bull and Bear Partners, is among the growing crowd that
believes U.S. stocks are overpriced and set for a "serious correction."

The Standard & Poor's 500 gained 5 percent in July and the broader stock market ended last month up nearly 20 percent since the start of the year, according to Reuters.

But many market participants are reigning in their bullish sentiment. They believe stocks have climbed too high, too fast and the rise occurred despite a lack of solid fundamentals.

Editor’s Note: Buy These 4 Stocks Before 399% Stock Market Rally!

"The market is overvalued and we've hit an inflection point. Unless we see some real strong growth numbers coming out of the economy, I'm looking at a 10 percent correction between now and October," Bouroudjian told CNBC.

"It's time to be very defensive," he warned.

One red flag is seen when assessing the market's notional value versus the country's total gross domestic product (GDP) on a historical basis, Bouroudjian explained.

"Equities have historically traded at a discount to GDP except for two times in the last 50 years," he said. "In the late 1990s we traded at 148 percent over GDP, and in 2007 we traded at 118 percent over. Unfortunately, both times were followed by a serious correction. We are now at 110 percent"

"The time has come to say that the 'easy' money in equities might be behind us unless we see real growth in the GDP numbers and forecasts increase for top line revenue from corporate America over the next couple years," he added.

Bouroudjian is also concerned that the appointment of a new Federal Reserve chairman could prompt a pullback. He has witnessed it twice — when Paul Volcker's job was passed to Alan Greenspan and when Greenspan's job was passed to Ben Bernanke.

"Both times were followed by a serious correction in the market," Bouroudjian told CNBC.

"I'm not saying it will happen again for a third time, but I am very defensive because of that too," he added.

Jack Ablin, CIO of BMO Private Bank isn't bearish per se but he also thinks "we're probably in a correction zone."

"If we were to take a look at removing all quantitative stimulus completely and just look at fundamental value, I think fair value in the S&P is probably in the 15-hundreds not the 17-hundreds. So we're looking at roughly about a 10 percent correction," he told Yahoo.

But it's probably not a reason to cash out and move to the sidelines, Ablin noted.

They're not just going to pull the rug out from under the market. They're going to try ease it out slowly. So it is incrementally bearish, but in the long term scheme of things probably just a speed bump," he adeed.

Editor’s Note: Buy These 4 Stocks Before 399% Stock Market Rally!

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