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It's the End of the 'Cheerleading Rally': Strategist

CNBC.com
Tuesday, 18 Aug 2009 | 4:42 AM ET

The sharp global slump in stocks Monday was a sign that the markets are on their way back to reality after about five months of strong gains, Kirby Daley, senior strategist at Newedge Group, said Tuesday.

Markets Set for Meaningful Correction
Stock markets have to revisit their lows, for equities to be in line with economic fundamentals, says Kirby Daley, senior strategist at the Newedge Group, as he shares his market outlook with CNBC's Lisa Oake and Sri Jegarajah.

Unlike previous selloffs that saw late-session rebounds, Monday “didn’t see the mysterious end-of-day ramping up and buying that we’ve come to get used to since this cheerleading rally began in March, with the green shoots, etcetera,” Daley told “Squawk Box Asia.”

A 10 to 15 percent correction would return the market back to reality and “eventually we’re going to have to revisit the (year’s) lows,” he said.

There’s a “massive difference” between moving out of a recession and economies staging a meaningful recovery, he added.

Global markets were dented by a sharp drop China stock prices, but that doesn’t mean a Chinese rebound will lead to a new rally, Daley said.

“There have been a number of times China has sold off in a vaccum,” he said, adding that the nervousness in Shanghai is based on overvalued stock prices compared with fundamentals.

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