FOR the past two months, the bulls have been back in force, pushing the markets higher than anybody had thought possible. But last week, some of the City’s biggest bears struck back, predicting a second slump in global equities between now and the end of the year. While many analysts have thought that the most recent rally in global stock markets has been overdone, few have matched the gloom of RBS’s chief credit strategist, Bob Janjuah. <br /><br />He expects global stock markets to test their March lows, and probably worse, as the data fails to support the V-shaped recovery. This would see the FTSE 100 – which closed at 4,709.38 points on Friday – sink to 3,512.1 points, and Janjuah thinks that “a move to new lows is highly likely”. Such a fall could last three months, he adds. <br /><br />He also expects the US S&P 500 index to reach the mid-500s, a far cry from its current level of just over 1,000. If the same thing were to happen to the FTSE 100, we would be looking at around 2,500 for the blue-chip index. <br /><br />Spread betters should take note that Janjuah is advising his clients to take profits in any positions that they hold in global equities or commodities and instead park their money in 10-year German bonds in late August or early September. <br /><br />These are perceived as safer bets than equities and last week’s German GDP data showing that output grew modestly by 0.3 per cent in the second quarter should confirm this.<br /><br />He says that the key indicators that anyone involved in the markets should be watching at the moment are: business spending on equipment; incomes; jobs; and profits. These will need to see improvements – rather than simply an easing pace of deterioration – if equities are to justify their current prices.<br /><br /><strong>ANOTHER DIP<br /></strong>Should these improvements fail to materialise then this would be precisely the time for spread betters to take their money off the table and reassess the situation with an eye to going short on equity indices at a later stage. <br /><br />Bob Janjuah is not alone in calling for another dip lower in equity markets. Morgan Stanley’s Teun Draaisma also believes that there might well be a correction in the stock markets, although he thinks that the current rally could go on a bit longer.<br /><br />Based on his team’s analysis of 19 previous major secular bear markets (ie, a long decline in stock prices that has far-reaching and durable effects) the usual rebound rally takes 17 months and sees a rise of 71 per cent. (See chart.) <br /><br />He says: “Currently we are likely to be over halfway in the rebound rally. We will be watching our market timing indicators, policymakers’ action, inflation and Chinese growth surprises to time the peak of the rebound rally.”<br /><br />The peak is typically followed by a correction of 25 per cent, lasting around 13 months. Draaisma’s correction would therefore be later than that expected by RBS’s Janjuah.<br /><br /><strong>BAD MONTH<br /></strong>However, with volumes light on the ground in the recent weeks and the fact that September is notoriously a bad month for stocks if history is anything to go by. <br /><br />David Buik at spread betting provider BGC Partners says: “It is just possible that a pullback will take place then, on the back of a stronger dollar, which could coincide with a temporary drop in oil prices and commodities, which could lower Wall Street’s flag for a while by as much as 5 to 10 per cent.”<br /><br />With this in mind, spread betters should be cautious of backing the current rally any further. Now might be the best time to lock in your profits and wait to see how the market progresses – or regresses – in the autumn.