Global stocks have dropped around 20 percent since late July, but one strategist says he expects stocks to bounce back by year-end because of further Federal Reserve easing.
“I think the reality is that the Fed and other central bankers around the world can’t just keep fiddling, eventually they need to provide further stimulus and I think that will come with the November meeting where we will see QE3,” Shane Oliver, Head of Investment Strategy and Chief Economist, AMP Capital Investors told CNBC on Tuesday.
Oliver says the world is headed for a recession, but bold steps could help avoid one.
“If you saw coordinated global monetary easing in the U.S., Japan and the UK, combined with big interest rate cuts in Europe...I think those things together would help do the trick,” he said.
According to Oliver, the European Central Bank (ECB) should cut interest rates to zero from 1.5 percent currently and he says there should be a “huge expansion” in the size of the European Financial Stability Fund (EFSF), something European leaders are considering.
But until that happens, Oliver says investors should stay on the sidelines. He sees the possibility of further losses for equities particularly in the months of September and October.
According to him, September is historically the worst month for stock market, while October typically sees a bottoming for stocks.
Oliver believes both gold and Asian equities, which have been sold-off in the recent weeks, will rebound more quickly than other assets. He says investors should refrain from selling off their shares in the coming months and losing out on that rally.