A delicate situation reminiscent of the Internet bubble could be unfolding on Wall Street.
According to BTIG’s Julian Emanuel, the market’s record price action mimics the end of 1999, and it could trigger a 10-20% correction over the next month.
“Be very aware that if and when this reverses, the consequences could be dire,” the company’s chief equities and derivatives strategist told CNBC’s “Trading Nation” on Monday.
On Monday, the S&P 500 recorded its 53rd year-end record and the technology-intensive Nasdaq recorded its 32nd. Meanwhile, the Dow Jones is down 1% from its all-time high.
“We are in a time when the impossible has really become normal,” said Emanuel. “If we had said that inflation would be at its highest for 30 years and [10-year Treasury Note] The return would be 1.3%, while the S&P would be at this level a year ago, no one would have believed you, me or anyone else.
Emanuel points out that the record price momentum is so strong that it overshadows the serious short-term risks associated with the delta variant cases of COVID-19, high inflation and what lies ahead for Federal Reserve policy .
“There may be a temptation to continue with this,” he said. “It’s time to maintain emotional control. “
Emanuel believes the enthusiasm could help lift the S&P 500 to 5,000, a jump of more than 10% from Monday’s close. However, he warned that the move would pose more risks to the market in the near future.
“What we don’t want is for people to become so committed to potentially 5,000 in this race that they become uncomfortable and sensitive to fairness,” he said.
The call for Emanuel’s withdrawal, which dates back to late spring, is getting stronger and stronger as he sees the CBOE volatility index rise along with the S&P and Nasdaq.
“We generally predict a pullback. This is what happened last September, ”said Emanuel. “The other thing that worries us is this drop in consumer confidence that we have seen.”
Long-term bullish Emanuel suggests investors with a longer time horizon should give the market a blow.
“Be mentally prepared to buy 10%, 15%, maybe even 20% because the long term trend is higher and buy withdrawals are all rewarded,” Emanuel said. “We all know September holds the record for being a difficult month to navigate, which ultimately leads to a shopping opportunity in October.”