Christie's employees walk into the auction rooms with the main sign from the Lehman Brothers office collection. Photo / Getty Images
A recovery in US stocks on Tuesday could merely be the calm before the storm, according to one analyst who has warned investors to brace for a possible "Lehman-like" aftershock following Monday's broad sell-off.
The gloomy outlook from Nomura strategist Masanari Takada comes as the market has grown increasingly concerned
over the fallout from a more contentious US-China trade row.
While some analysts have warned of rising recession risks, others have been less ominous in their forecasts that suggest more volatility in stock markets should be expected, amid an uncertain outcome to trade talks and a more hawkish Federal Reserve than investors had hoped.
Takada said he expected a spike in volatility to arrive in two waves, citing the sell-offs that historically occur in August and selling by hedge funds and trend-following algorithmic traders. The latest retreat out of equities signalled that the first wave of volatility has arrived, he said, noting that the Vix volatility index — known as Wall Street's "fear gauge" — has broken above 20.
"We would add here that the second wave may well hit harder than the first, like an aftershock that eclipses the initial earthquake. At this point, we think it would be a mistake to dismiss the possibility of a Lehman-like shock as a mere tail risk," he wrote to clients, referring to the collapse of the Lehman Brothers investment bank during the 2008 financial crisis.
