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JPMorgan sees a ‘summer top’ and market correction into the fall

By dailymail / Published on Saturday, 10 Jun 2017 19:18 PM / No Comments

A correction is defined as a 10 percent drop from a recent high, something the S&P 500 has not seen since February 2016. The surprise UK vote to leave the EU last June only sent the index 5.3 percent lower, before it quickly recovered to surge into record territory.

That climb has moderated in the last several months — the S&P 500 has only closed higher or lower by more than 1 percent on four trading days in 2017.

On Friday, the CBOE Volatility Index (.VIX) fell to 9.37, its lowest in more than 23 years. The extremely low volatility has many on Wall Street worried, including Goldman Sachs CEO Lloyd Blankfein. Last month, he said the market calm is “not a normal resting state.”

Meanwhile, DoubleLine CEO Jeffrey Gundlach expects a summer stock market correction as Treasury yields rise.

In the last few months, the U.S. 10-year Treasury yield has fallen but remains well above multi-year lows hit in the summer of 2016.

“If a top pattern [in stocks] does unfold in the weeks ahead, we think it would make sense to exit long risk and even tactically position for a correction into the fall. In our view, it would take a material reversal of the Treasury bull trend to repair the health of the equity rally and avoid a setback into the fall,” Hunter said in the note.