U.S. stocks were sharply lower on Thursday, with the S&P 500 falling back under its 14-day moving average, and Cantor Fitzgerald expects that weakness to continue, saying it has turned bearish on U.S. stocks.
The firm noted a number of "divergences" that it said pointed to market losses ahead, including a decline in market breadth and recent underperformance in small-caps; the Russell 2000 <.TOY> is down 8.1 percent from a recent record, while the S&P is down less than 2 percent.
"Divergences are like stress fractures ... at some point the divergence reverts," the firm wrote to clients. "As we see it," Cantor's analysis "has resulted in the conclusion that U.S. indices are due for at least a 5 to 7 percent correction to start, but we believe that is likely followed by a more significant series of corrections into 2015."
Cantor also noted low levels in the CBOE Volatility index <.VIX>. At 15, the "fear index" is up significantly from a recent low of 10.28, though it remains well below its long-term average of 20.
"Volatility in its various forms can stay low for prolonged periods for good reason. Those reasons are simply no longer compelling," the firm wrote.