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S&P 500 set to drop by up to 10 percent before year-end: Nomura ‘perma-bear’ Janjuah

U.S. stocks are sitting at a critical point and the S&P 500 index is set to drop by up to 10 percent before year-end, according to Nomura's strategist and resident "perma-bear", Bob Janjuah.

Speaking to CNBC on Monday, Janjuah, who is Nomura's senior independent client advisor, pointed to Friday's closing price of 2,141 for the U.S. stock index and said the level was a marker that "triggers me to think about where we may be headed."

In a note issued last Friday, Janjuah highlighted volatility as a sensible play in the next six to eight weeks, but also acknowledged on Monday's Squawk Box Europe "You may want to sit more passively and buy the dip for the rally into year end."

Janjuah's comment refers to his expectation of a short-lived relief rally regardless of which U.S. presidential candidate sweeps to victory once the votes are counted after November 8. Yet despite seeing potential for this limited equities bounce following the end of a dysfunctional U.S.election campaign, Janjuah's medium-term outlook is notably more cautious.

"The really hard work begins next year with the data and the new President," he said.

Grizzly Bear growling
James Balog | Getty Images

Janjuah has earned his reputation as an "uber-bear" for a series of pessimistic predictions, including a call last September that the S&P 500 would dive 10 percent-15 percent and an earlier forecast that the final three quarters of 2014 would see a 25 percent-50 percent sell-off in the index. Neither prediction came true.

The widely-watched Nomura strategist is also known for his contrarian tendencies which were again evident in his rejection of popular calls that a December 2016 or first quarter 2017 rate hike from the Federal Reserve (Fed) would signal the launch of an inexorable march higher for U.S. interest rates.

According to Janjuah's note, "There is no hiking cycle of any meaningful degree ahead of us."

Indeed, he believes the opposite may even be possible.

"The Fed can cut rates, not many other central banks can credibly cut rates. The Fed I think can if we can get over this little obsession with inflation we've got right now which I don't think will last very long," he said.

Janjuah also highlighted the elevated risk to markets from central bank actions and investors' unjustifiably benign view of their consequences. He warned that – while he doesn't accept this notion - markets have now bought into the thesis that "fiscal policy is going to come and rescue us all" and drive the resurgence of nominal GDP.

He cautioned of the market response ahead to this thinking, saying, "If yields do normalize to where perhaps the market is thinking about, other assets which are priced off of the rate market will be very, very vulnerable, including credit and equity markets."

Despite some saying this bull market is 'unloved' for the amount of hesitancy seen on the part of both investors and research houses with regards to buying into current market levels, other high-profile commentators still retain a more positive outlook.

Richard Bernstein of Richard Bernstein Advisors is among those who believe the negativity is overdone. In a recent note, the investment adviser said, "The constant negative consensus regarding equity returns suggests the current bull market could still have a considerably longer life than most investors expect."

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