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Market Pros: Jolt Of Reality About To Trigger Sell-Off?

Tuesday, 26 Oct 2010 | 6:24 PM ET

We've been hearing for months that the markets have been climbing in anticipation of the mid-term elections.

Although it looks like the GOP will win the House and a spilt Congress is typically good for the markets in the long-term -- Andy Busch of BMO Capital Markets is worried about the short-term.

“I think the market needs to dial back expectations of what the GOP can do if the Republicans gain control of the House,” says Busch in a live interview on Fast Money.

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Is the mid-term pop priced in? Insight with Andrew Busch, BMO Capital Markets.

Specifically he thinks the big disappointment for the market comes from the tax cuts passed by President Bush a few years back that expire at the end of this year.

”I think it’s unlikely anything gets done during the lame duck session. And I think the market has priced in the Bush Tax cuts being extended for middle income earners."

That could be a problem.

"I can tell you it's really unlikely anything gets done in the lame duck session. That could be a jolt of reality for equity markets,” he says.

Ontop of that Andy Busch thinks the bar is set too high for the Fed. “Expectations of QE2 are just massive right now,” he adds. “If the Fed only introduces QE2 of about $40-50 billion a month I think the market will also be disappointed.

In that kind of environment the top strategist thinks even the smallest hiccup could present big problems for stocks – even something that would seem innocuous right now like a flare up in the currency rhetoric.

In fact, he tells the desk not to be surprised by a pullback of 5-10% – over 100 S&P points!

“We’ve had a big rally for equities this year and I just think there are a lot of things out there that could derail it. I’m cautious.”



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