Saxo Bank equity expert says too early to predict bear market

Paul Garnry says 'healthy correction in equity markets but also likely short-lived'

An electronics stock indicator showing share prices at the Tokyo Stock Exchange in Tokyo. Behrouz Mehri/AFP

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 did not get the timing exactly, his alarm bells on the run-up in equity markets were on point.

Now, Mr Garnry says the declines are likely to be short-lived as US 10-year Treasury yields have not 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,” he said. “That area is more likely in the 3.5 to 4 per cent range.”

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Global stocks fluctuate after Friday plunge, dollar rises

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The S&P 500 Index fell 6.2 per cent 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 per cent on Friday. Markets across the globe were sucked into the sell-off, with the Stoxx 600 Index declining for a six straight day on Monday and the Nikkei 225 Stock Average falling more than 10 per cent from its January high, poised to enter a correction.

Still, Mr 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 behaviour which we last time saw in 2007,” he said, adding that the decline in global equities could extend to about 7 to 10 per cent.