Key Words: Stocks could drop 20% after an October disappointment, strategist warns


‘The markets are set up for a disappointment. They’re going to have to re-rate their expectations. You’ve got a market that this year has traded off of hopes for coordinated global central bank easing. That’s the only reason why we’re up 20% year to date. We’re certainly not there because of fundamentals.’

That’s Joseph Zidle, Blackstone’s BX, -1.20% chief investment strategist, explaining to CNBC on Wednesday why stocks could be headed for a beatdown.

He’s looking for the Fed to cut rates by a quarter point on Wednesday, and then again in October, but then that’s it. Zidle warned that could rattle a market “demanding upwards of 100 basis points” on top of what we got in July.

He said he sees Fed Chief Powell wrestling with inflation at home while also looking to align U.S. rates with the rest of the world.

“The markets are saying to the Fed, ‘Think globally. Rates around the world are so low, you’ve got to cut our rates lower.’ But the Fed is going to have to respond to local data,” Zidle explained. “They are going to have to act locally which I think is going to constrain them from giving the market all it wants.”

Zidle’s end-of-year target for the S&P is at 2,875, a decline of about 4% from current levels. He does, however, see potential downside. “Any bull market can produce 10-20% pullbacks. We saw that in the fourth quarter of last year,” he said. “I wouldn’t rule out something that’s on the order of 10-20%.”

At last check, the Dow DJIA, -0.27%  , S&P SPX, -0.27% and Nasdaq COMP, -0.37% were all less than 1% lower.

Watch the full interview:

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