Stocks are in for a period of volatility that will present a strong buying opportunity, according to Bob Janjuah, the often-bearish strategist at Nomura Securities.
The reason for his optimism of sort: Any market weakness will be met with a flurry of central bank activity, the likes of which has helped prop up the S&P 500 (^GSPC) to a 200 percent gain since the March 2009 financial crisis low.
"I would use any risk asset weakness over the balance of September and early October as an opportunity to BUY risk into year-end/early 2015," Nomura's co-head of asset allocation strategy said in a note. "On balance I feel that beyond the next three to four weeks, I am mildly bullish risk on a three- to four-month time frame. The drivers are likely to be central banks, as well as the usual seasonality factor, which tends to drive risk assets up into year end."
After successive wrong predictions for large losses in the U.S. equity markets-in particular a 25 percent to 50 percent drop he expected to materialize in early 2014-Janjuah changed gears and looked for a 1,950-2,000 range for the S&P 500, which it recently crossed.
Over the next three or four weeks, he said the stock market index could sustain a drop of 5 percent or so, to support at 1,905, then run higher to the end of the year.
With the European Central Bank now expected to try to emulate the Federal Reserve 's quantitative easing , and the Bank of Japan continuing to employ aggressively loose monetary policy, it's clear that even with the Fed unwinding its monthly bond purchases, liquidity pumping will remain in vogue globally.
"I have long expected outright ECB QE, and we basically have that now, but I still think the ECB will move to explicit QE in the next quarter or so. Of course that won't 'fix' the real economy in the euro zone, but central banking easy money since 2009 has had very little to do with boosting the real economy and is much more about generating assets bubbles in the hope that it creates trickle-down consumption," Janjuah said.
"That this policy has failed is clear-the biggest beneficiaries since March 2009 have been the owners of capital (i.e., those who least need wealth gains and who tend to hoard, not spend, such gains) very much at the expense of the masses (i.e., those who most need income and wealth, and who tend to spend and not hoard)."
Janjuah noted that he thinks the U.S. dollar will get stronger, but not as a sign of fundamental economic growth.
"But here I remain very uncomfortable, as I do not see the U.S. economy (the real economy, not financial asset prices) strong enough to offset the deflation it will experience as USD continues to climb. Which is why I do not expect the Fed to do anything on the rates/easy money front for a long time," he said.
As the scenarios play out, Janjuah recommends playing yield spreads between peripheral euro zone countries like Portugal, Italy and Spain against German bunds. He also likes European corporate credit and large-cap stocks with aggressive share buy-back programs.
A looming market drop remains in play, but not until volatility falls to unsustainable levels-likely meaning single-digit reads for the CBOE Volatility Index (^VIX), a commonly used measure of market complacency.
"I would expect that, if I am right about the next quarter or two, then VIX should hit this target during this time frame," Janjuah said. "At that point, positioning for the big turn and reversal of large chunks of the nominal wealth/asset price gains since early 2009 would take over as my key investment strategy."
-By CNBC's Jeff Cox.