The market may begin looking different after Labor Day.
Even though stocks just completed a banner month, the Economic Cycle Research Institute’s Lakshman Achuthan is waving a warning flag.
Achuthan believes there’s a heightened risk of a sell-off that could wipe out the recent all-time highs. He used a special chart of the SP 500 over time on CNBC’s “Trading Nation” to make his case.
“What’s unique about this chart is that we’ve marked off the slowdowns in the economy — the so-called growth rate cycle slowdowns,” the institute’s co-founder said Friday. “The shaded areas are when the economy is decelerating, and that is a period of time when the risk, more often than not, is that you’re going to see some sort of correction in the order of 10 to 20 percent.”
According to Achuthan, economic growth likely peaked in 2017. He estimates he’ll have enough data to make an official call before winter.
“The slowdown is, I think, very real and will become more apparent in the coming months,” he said.
Yet, stocks are trading around all-time highs. The tech-heavy Nasdaq just saw its strongest August performance since 2000, and consumer confidence is also at 18-year highs.
“Some will remember back in the fall of 2000, the market didn’t do so well afterwards,” noted Achuthan, who has been accusing Wall Street of being too optimistic this year.
On May 21, the former self-proclaimed super bull said the economy was “cruising for a bruising.” Since that “Trading Nation” appearance, the SP 500 is up 7 percent.
However, he’s not wavering from his slowdown call — noting that he’s not predicting a full-blown recession.
“I would just say you have to manage your cyclical risk. It’s not an all clear signal here,” Achuthan said. “It’s a directional call. Again, there’s no recession. It’s a slowdown.”
Not a Scientific Survey. Results may not total 100% due to rounding.
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Trades to Watch
Gina Sanchez of Chantico Global says a North Korean attack, should one occur, isn’t likely to cause significant long-term market impact.
Boris Schlossberg of BK Asset Management says the ISM non-manufacturing report is key to watch ahead the jobs data released Friday.
Chad Morganlander of Washington Crossing Advisors is watching the dollar this week and expects it’ll begin to strengthen heading into the second half of the year.
Stacey Gilbert is the head of derivative strategy at Susquehanna.
Managing Director, ACG Analytics
Managing Director, Head of Technical Analysis, Evercore ISI
Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.
Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.
In March 2018, Eisen was named co-anchor of CNBC’s “Power Lunch” (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.
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