The stock market could soon reverse its ‘borderline miraculous rally’ and retest June lows, UBS’s Art Cashin says

• Stocks could whipsaw and retest June lows regardless of October’s constructive inflation report, Arthur Cashin mentioned.
• Cashin famous that stock market rallies since June have been fleeting, and it is nonetheless a bear market.
• He warned a reversal could come when the VIX approaches 20, and the gauge at present clocks in at 22.

The stock market could soon reverse its “borderline miraculous” rally and retest the lows seen in June, in line with UBS’s Art Cashin.

“I nonetheless assume we are going to in all probability return and retest the lows,” Cashin mentioned in an interview with CNBC on Friday, a day after traders cheered October’s surprisingly positive inflation report and spared a blistering rally of more than 7%. 

But rallies in bear markets are short-lived, Cashin mentioned, predicting extra volatility to come back.

“Yesterday’s rally was borderline miraculous. They stored transferring up, there was no retracement, no pause-and-look-backs. But, to not rain on the parade, it’s important to keep in mind that rallies in bear markets are quick, sharp, and die in low volumes,” he added.

Other commentators have been voicing hopes for a brand new bull market to materialize as inflation reveals indicators of rolling over. Fundstrat’s Tom Lee predicted a 20% rise within the S&P 500, and Wharton professor Jeremy Siegel mentioned the Dow could surge one other 2000 factors as soon as the Fed pivots to reducing charges. 

But that is unlikely to occur subsequent 12 months if the US would not see a recession, in line with strategists at Bank of America, and costs could keep sticky regardless of the latest downtrend in inflation. 

That could spell extra unhealthy information for equities, which have been weighed down by sky-high inflation and Fed tightening all 12 months. The S&P 500 has slid over 20% since January, and notched its worst first half of the year since 1970.

Rallies since then have normally ended when the Cboe Volatility Index neared a crucial stage of 20, Cashin famous. The VIX—often known as the stock market’s worry gauge—is at present simply above that threshold, clocking at 22.61 as of 1 p.m. ET on Friday.

“It’s been like an electrical shock,” Cashin mentioned of the VIX. “And the rally that was occurring when the VIX obtained round there ended and rolled over. So for me, that can nonetheless be a key indicator.”