Reddit mania, inflation dangers are the recipe for a severe sell-off: BTIG

BTIG’s Julian Emanuel believes the Reddit frenzy will play a major role in a deep sell-off this summer.

On CNBC’s “Trading Nation” on Monday, Emanuel compared the current background with the end of January, when the mania ignited all cylinders. Weeks later, wild swings put major indices under pressure as retail investors took profits.

“We all know the video game dealer [GameStop] Truly a leader at the time, “said Emanuel, BTIG’s chief equity and derivatives strategist.” In essence, it took a month or two of sharp sideways movements to curb activity in the broad market when the speculation surfaced. “

This time, according to Emanuel, the consequences could be more serious. Should the Reddit mania backlash develop as Emanuel predicts, he warns it would come amid heightened Wall Street inflation worries.

“We put up some yellow warning flags,” said Emanuel.

He is particularly concerned about the core PCE, a key indicator closely monitored by the Federal Reserve, which rose 3.1% faster than expected in April year over year.

“Whenever that number has risen above 2%, the average monthly return for these periods is -1.6%. [for the S&P 500]”he said.” You associate that with the fact that we had the lowest bearish values ​​in the world [AAII] Sentiment poll last week, not seen since the beginning of 2018, just before the Armageddon episode, [and] We believe a recipe for retreat within the longer-term uptrend is right ahead of us. “

Since Emanuel believes the bull market will be intact at least until the middle of next year, he has no plans to retreat.

“We would try to add our core overweights in energy and financials,” he added. “Right now we prefer the more defensive cyclical stocks like consumer staples, healthcare and actually REITs.”

Emanuel said he believes the S&P 500 could fall as low as 3,770 this summer, which is the 200-day moving average. However, he assumes that the index will recover from its low point and is sticking to a year-end target of 4,000.

On Monday the S&P 500 closed at 4,226.52, up nearly 13% for the year.

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