20 strategists predict when stocks will have the next big tumble — and how far they'll fall

Published Tue, Aug 3 20213:36 AM EDT

It's been a good year for stocks , building on stellar gains from 2020 . But investors' big question now is: How long will the bull market keep running before inflation worries and Covid drag it down? CNBC International conducted a survey of 20 high-profile market strategists from July 26-30, asking them to predict when stocks' next big tumble will come. The respondents also gave their forecasts on how big that fall will be and shared their strategies on how to play it. CNBC offered anonymity to the strategists, all of whom were based in the United States or Asia. When the market drop will come The U.S. and Europe have climbed as vaccination efforts have boosted economic confidence and loose monetary policies have kept markets flush with cash. Major Asia-Pacific markets including India, South Korea and Australia also have benefited from strong investor sentiment . Working against that buoyancy, however, are persistent worries: Will quickly evolving Covid variants cost lives and throw countries back into lockdown? How real is inflation? Will corporate earnings hold up? Markets have been buoyed by low interest rates, so the start of withdrawal of Fed's monetary accommodation could cause a bond market tantrum, followed by a stock market tantrum. Market strategist Of the 20 analysts who spoke to CNBC, 17 said world markets will see a sell-off this year — and most see it sooner rather than later. Eleven predicted the drop comes in September, three pinned it to October or November, and two expect it in December. One answered "all of the above" when asked which period would see the sell-off. Of the three optimists, only one said markets are in a sustainable bull run. Two said the drop will come, but it won't be until the first quarter of next year. The factors at play right now Back in May, a separate CNBC International poll of 30 strategists found a clear majority expects inflation to be temporary as the United States and other advanced economies lean on their central banks to recover from the hit they took during the pandemic. Inflation would threaten central banks' ability to maintain easy monetary policies. But the money isn't going pour from central banks forever, and things change when some of that liquidity dries up. "Markets have been buoyed by low interest rates, so the start of withdrawal of Fed's monetary accommodation could cause a bond market tantrum followed by a stock market tantrum," said one strategist. But as another respondent pointed out, there's little impetus for the Fed to act now. "To be clear, the risks are still to the downside, and the delta variant coupled with transitory inflation ... will get the Fed off the hook from having to begin tightening anytime soon," he said. There was agreement in the survey that the surging delta variant is a major threat to the economy. Its spread will shape tax policy and monetary policy. "Delta variant cases are increasing. If a booster shot is needed, but delayed, that could cause some confusion/concern for the economy," one respondent wrote via email. "Also, President Biden will need to get his tax plan in order before the '22 elections ... Hence, you could have at the same time: Fed Tapering + Increased tax plan + Delta variant increasing ..." How big the market drop will be Among those who took CNBC's poll, half — 10 strategists — forecast a sell-off of 5%-10%. Six respondents anticipate a steeper decline of up to 15%. A slender minority were on the extremes, calling for declines of either less than 5% or between 15%-20%. No survey participant saw a greater than 20% tumble in the foreseeable future. Still, one analyst argued that there's not a lot of room for error in markets anymore, especially if regulations tighten in the United States. "Global markets in general and U.S., in particular, are priced for perfection," he said, "very much ignoring ... government and political priorities away from free-markets towards greater regulation and tighter oversight." Advice on what to buy Strategists suggested a wide range of sectors to buy if a sell-off comes, but favorites included real estate investment trusts (REITs), big technology names, and health-care stocks. "The growth of dividends in the recovery and the ability to potentially increase rents" if inflation rises put REITs in a position "for further good returns," said one institutional investor based in Asia. Three others also like REITs. Amazon , Apple and Microsoft specifically or Big Tech generally were recommended by a combined five strategists as stocks to buy when markets dip. Another two favor "growth" stocks, which are often taken to mean tech shares. One sell-side analyst recommended the iShares Biotech ETF as a health-care bet, while another likes vaccine maker Pfizer . Among a couple who said they'll bet on consumers, one analyst suggested Starbucks and Walt Disney as good investments. Two strategists recommended companies that pay generous dividends, while others like energy shares, financial stocks and telecom companies. Beijing's crackdown A slowdown in China on the back of that country's ongoing regulatory crackdown could hurt growth globally, said a respondent who acknowledged that "my biggest concern deals with China." "If their growing restrictions cause a slowdown in growth in China, it's going to have implications for global growth," he said. "However, I'm also quite worried that people are too complacent about what is going on with China Evergrande Group," he said, referring to a real estate conglomerate that has faced recent scrutiny over its outstanding debts . But even if China's economy slows, such a pullback would create "great" buying opportunities in emerging markets. "Those who raise a little bit of cash now will be able to get some great bargains in the fall," he said. —CNBC's Naman Tandon contributed to this report.

A statue of George Washington is pictured in front of the New York Stock Exchange on Wall Street in New York City.

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It's been a good year for stocks, building on stellar gains from 2020. But investors' big question now is: How long will the bull market keep running before inflation worries and Covid drag it down?