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Stars aligned for 'serious' US correction, analyst says

Tuesday, 13 Aug 2013 | 1:43 AM ET
Time to be very defensive: Bouroudjian
Monday, 12 Aug 2013 | 6:15 PM ET
Jack Bouroudjian, Bull and Bear Partners CEO, says there is no reason for the U.S. Fed to begin tapering now, and explains why he is concerned about the market for the next couple of month.

As U.S. stocks ease back from record highs this week, more and more traders see the S&P 500 as overvalued and are pricing in a "serious correction."

Jack Bouroudjian, CEO of financial services holding company Bull and Bear Partners, told CNBC's Asia Squawk Box on Tuesday he was the most bearish he has ever been on the U.S. stock market.

"The market is overvalued and we've hit an inflection point. Unless we see some real strong growth numbers coming out of the economy, I'm looking at a 10 percent correction between now and October. It's time to be very defensive," he said.

Bouroudjian said the market's notional value has become vastly inflated versus the country's total gross domestic product on a historical basis, which is a red flag and could herald an imminent correction.

(Read more: S&P 500 Nears 'Ultimate' Death Cross: SocGen)

"Equities have historically traded at a discount to GDP except for two times in the last 50 years," he said. "In the late 1990's we traded at 148 percent over GDP, and in 2007 we traded at 118 percent over. Unfortunately, both times were followed by a serious correction. We are now at 110 percent."

"The time has come to say that the 'easy' money in equities might be behind us unless we see real growth in the GDP numbers and forecasts increase for top line revenue from corporate America over the next couple years," he added.

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Bouroudjian's comments underscore the cautious tone surrounding the U.S. stock market that has emerged recently, as industry watchers start to doubt just how long the good times can last. Wall Street traders have also flagged several occurrences of the 'Hindenburg Omen' in the past few weeks, a technical indicator which predicts the potential of a financial market crash.

(Read more: 'Hindenburg Omen' hovering over Wall Street again)

The S&P 500 index is up over 18 percent since the start of the year, boosted by more signs of an economic recovery, particularly in the housing market and employment, although it has in the past week eased from record highs seen earlier in the month, due to thin summer trading volumes and continued worries over Fed tapering.

According to Bouroudjian, another trigger point for a market correction could be the appointment of a new Federal Reserve chairman after Ben Bernanke's term expires in January.

"Twice in my investment lifetime, we have changed the Fed chairman. We changed it when (Paul) Volcker changed to (Alan) Greenspan (in 1987) and when Greenspan changed to Bernanke (in 2006). Both times were followed by a serious correction in the market," he said.

(Read more: US economy should be growing at 3-4%: Former Fed governor)

"I'm not saying it will happen again for a third time but I am very defensive because of that too," he added.

—By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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