Faber: S&P Might Plunge Amid 'Considerable Risk Everywhere'

Tuesday, 25 Jun 2013 12:22 PM

By Dan Weil

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U.S. stocks may be oversold for the short term, but the long-term outlook is extremely bleak, says Marc Faber, publisher of the Gloom Boom & Doom Report.

The Standard & Poor's 500 Index could have a snapback to 1,630 or 1,640 that could last a month, he tells CNBC. The latter level would represent a 3.4 percent gain from 1,586 late Tuesday morning.

But ultimately Faber sees the S&P 500 plummeting 20 to 30 percent from its May 22 record high of 1,687. A 30 percent drop from that level would produce a reading of 1,181.

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Weakness in emerging markets will weigh on stocks, Faber contends.

"The economy will weaken and not strengthen globally, because if you look at where the growth came from over the last 10 years, it came almost 80 percent from emerging economies," he explains.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

"These are not growing now, and corporate profits will come under pressure, and that will have an impact on Western European companies and U.S. multinationals," Faber adds.

"New highs in emerging markets and in high-yield bonds are out of the question, and if it happened in the S&P, which I don't believe, it would be driven by very few stocks. Longer term, the market is far from oversold. It still has considerable downside risk everywhere."

As for the short term, it's not just stocks that have dropped too far. "The 10-year [Treasury note] is very oversold near term and into the immediate term, and gold is even more oversold," Faber asserts.

"As an investor, you need discipline and patience. I think the best course of action is actually not to buy anything, but rather to reduce positions on a rebound," he adds.

Other experts also paint a bleak future for U.S. stocks.

Investment manager John Hussman, founder of Hussman Funds, said stock investors are hurtling toward a risk-aversion stance, a bearish mindset that could forecast more losses in an overvalued, overbought and overbullish market.

Hussman, a consistent critic of Federal Reserve policy, said in his weekly newsletter that the path of least resistance for stocks is down for now.

The fact stocks are deteriorating broadly despite continued Fed support may mean some other negative factor at play, in Hussman's view. He said credit problems in China, disappointing corporate earnings, general economic weakness or some unidentified problem may soon be revealed.

"But whatever the reason, investors appear to be shifting from risk-seeking to risk-aversion."

Meanwhile, investors remain concerned that the Fed's possible tapering of it quantitative easing (QE) will hurt stocks.

“QE lifted all boats,” Witold Bahrke, senior strategist at PFA Pension A/S in Copenhagen, told Bloomberg. “Equally, its removal will shake all markets."

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

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