Market set for ‘a sharp and swift decline’: Trader

Market set for 'a sharp and swift decline': Trader

The Federal Reserve Bank says it will continue its $85 billion monthly bond-buying program unabated. That has led the CEO of the world's largest money management firm to say the markets are starting to look like a bubble.

At an event in Chicago, BlackRock CEO Laurence D. Fink is reported to have said about the Fed's "quantitative easing" ("QE") program:

"It's imperative that the Fed begins to taper… We've seen real bubble-like markets again. We've had a huge increase in the equity market. We've seen corporate-debt spreads narrow dramatically."

That is a strong statement from the top person at a firm managing $4.1 trillion.

[Quick explanation: As the price of bonds rise, the yields on those bonds fall. The spread between yields on corporate debt and government debt is also an indication of what the market thinks of how risky corporate bonds are. When investors buy up corporate bonds, their prices rise higher relative to government bonds, shrinking the spread.]

(Read: Stocks close lower; S&P 500 halts four-session record run)

Since the financial crisis of half a decade ago, the Fed has been buying government bonds and mortgage bonds in an effort to stimulate the economy with added dollars in the financial system. As well, it also lowers bond yields and thus interest rates. That should make borrowing those dollars more attractive to businesses and individuals.

From December until now, the Fed has pumped nearly $900 billion into the financial markets. Since the start of 2013, the S&P 500 is up 23.5%.

"I think there's definitely signs we could be in bubble territory," says CNBC contributor Gina Sanchez, founder of Chantico Global. "And, there's no question in my mind that we probably will enter bubble territory before the Fed exits [QE]."

But, Sanchez believes the Fed will continue QE and let the market run up a little more. "If we're not in bubble territory, we're headed there," she says.

(Read: Slightly less dovish Fed sends ripple through markets)

Looking at the charts on the Dow Jones Industrial Average is Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson. While other indices are at record highs, he sees the Dows recently inability to break its highs from earlier in the year as a bearish signal.

"I agree with Mr. Fink that we are in a bubble," says Ross. "But here's the thing: bubbles are notoriously difficult to predict in terms of their timing and even more difficult to trade. Even Alan Greenspan himself famously called the market a bubble in December of 1996. Over the next three years, the market only went up 83%. So, let's be careful when we throw this term around."

What could be next for the market? To see the rest of Sanchez's fundamental analysis and Ross' technical analysis on the Dow's charts, watch the video above.

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