GO
Loading...

The end of QE will cause 15%-20% correction: Expert

In the Federal Open Market Committee's June meeting, the Fed decided that it would likely look to end its asset purchasing program (known as quantitative easing, or QE) with a $15 billion reduction in monthly purchases in October, according to the meeting minutes released on Wednesday. The markets took the news in stride, and stocks actually closed higher on the day.

Read More Fed Minutes: QE likely to end with final $15B reduction in October

But Peter Boockvar, chief market analyst at The Lindsey Group, told CNBC's "Futures Now" that equity investors are making a huge mistake.

"I do not" think the market can handle the end of QE, Boockvar said on Thursday. "QE in its current form was a trillion-dollar annualized stimulus program that's going to zero. It magically turned 1.9 percent GDP growth last year and mid-single-digit earnings growth into a 30-percent-plus gain in the S&P. I think, this year so far, the market's been OK with it because they've been believing that the Fed can somehow make this seamless transition from the QE to a self-sustaining, escape-velocity-type economic recovery. And I think, from what we've seen so far in the first half of 2014, that's not really the case."

Read MoreMarc Faber: The asset bubble has begun to burst

For Boockvar, who has long been a critic of the Fed and a bearish voice on the markets, the awakening will not be pleasant.

"I think there's going to be sort of a bell ringing that, wow, this program is ending, the economy is still growing in fits and starts, and what has lifted asset prices to such an extraordinary extent is now going away. And I thought the market would have learned its lessons after QE1 and QE2 ended, when the markets fell 15 to 20 percent, and think, 'OK, well we don't want that to happen again, let's prepare.' But I'm afraid that we're going to rally right into the end, only to tip over again."

Peter Boockvar
Source: Peter Boockvar
Peter Boockvar

Indeed, as Boockvar points out, the completion of QE1 (in March 2010) and QE2 (in June 2011) both just about coincided with shorter-term market peaks.

Read More Marc Faber and Peter Schiff may be just what this rally needs

So just how far will the market "tip" this time?

"I went into this year trying to make the argument that the end of QE is going to lead to another 15-to-20-percent-type correction, just as we saw in the previous two episodes," Boockvar said. "So I still think that's a good possibility, and I think the next five months into year-end are going to be extremely treacherous for equity investors."


—By CNBC's Alex Rosenberg

Watch "Futures Now" Tuesdays and Thursdays at 1 p.m. ET exclusively on FuturesNow.CNBC.com!

Contact Futures Now

  • Showtimes

    Watch Futures Now Tuesdays & Thursdays 1p ET exclusively on cnbc.com!

Sponsor Links

  • CME Group brings buyers and sellers together through its CME Globex electronic trading platform and trading facilities in New York and Chicago.

  • Take your trading to the next level with a platform that lets you trade stocks, options, futures and forex all in one place with no platform or data with no trade minimums. Open an account with TD Ameritrade and get up to $600 cash.