Faber’s dour forecast is that the S&P 500, which ended Thursday trading at 1,943, amid a China-fueled global market rout, could plunge to its 2011 low. According to FactSet data, that would be 1,099.23, set that October. Faber referred to that outcome, a more-than-40% plunge in the broad stock-market benchmark, as his “medium bearish” scenario. His most bearish prognostication envisages the S&P 500 falling back to its 2009 nadir, which FactSet data put at 676.53.
But the real kicker is that Faber isn’t pointing to problems in China as the direct cause for the market’s march into bear-market territory. “The main factor is diminishing global liquidity because of the decline in oil prices,” he told MarketWatch. …
At the heart of Faber’s thesis is the view that the price of crude oil—considered the lifeblood of the global economy—points to an economy that is contracting.
And that is bad news for the U.S. stock market.
“When oil prices increase, it basically is a consequence of expanding [global] liquidity,” Faber said, so inversely, this unrelenting fall suggests contraction.
— Excerpt contributed by Jason Kelly
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