Nomura’s bearish strategist Bob Janjuah believes the stock market could continue to rally to new highs given current market conditions.
“As I have said for at least a year now, until and unless we see a weekly close (ideally consecutive weekly closes) in the VIX index below 10, then I judge risk-on has more to go,” Janjuah wrote in his latest note to clients.
Janjuah is referring to the CBOE Volatility Index (VIX), a measure of options traders’ expectations for future market volatility.
“We got close in June/early July, but we did not get there. I would expect that, if I am right about the next quarter or two, then VIX should hit this target during this timeframe.”
Janjuah, who has long been one of the biggest bears on Wall Street, said he expects a short period of weakness in risk assets (read: stocks) over the next three or four weeks, but he is mildly bullish on this asset class over the next three to four months.
Janjuah added that: “On a three- to four-month horizon I expect more euro weakness, and a lot more JPY weakness vs the USD. I also really like peripheral eurozone bond spreads (to Bunds) on a three- to four-month and three- to four-year basis. I see break-up risk as unlikely for the foreseeable future… and I would continue to focus my equity exposure to those big caps where stock buy-back programmes remain open, again particularly in Europe.”
Janjuah’s call on more weakness in the Japanese yen comes alongside a similar call from DoubleLine’s Jeff Gundlach, who said in an interview on CNBC on Tuesday that the yen could fall to 200 against the U.S. dollar in three to five years.
Currently, the yen is at about 106 against the dollar.
Here’s a chart of the VIX over the last two years. The VIX has been historically low, but hasn’t closed below Janjuah’s magic 10 level.