U.S. stocks and bonds have been subject to intense selling for the past week, and many investors are preparing for further losses.
Wall Street banks are revising their predictions to take into account the Federal Reserve, which is suggesting further tightening to combat inflation following this week’s another market-devastating rate hike.
This year, the S&P 500 has decreased by more than 22%. It erased the dramatic summer stock market bounce on Friday for a brief period before reducing losses and finishing above its mid-June closing low of 3,666.
According to Sam Stovall, the chief investment analyst at CFRA Research, “the market is currently undergoing a crisis of confidence” as a result of the Fed’s intention to raise rates higher than anticipated.
In the coming days, if the S&P 500 falls below the mid-June low, it might spark another round of rash selling, according to Stovall. The index might drop as low as 3,200 as a result, which is in line with the typical historical dip in bear markets that occur during recessions.
Investors are concerned that a slump will result from the Fed’s tightening even if recent data indicate that the U.S. economy is rather healthy.
In the coming days, if the S&P 500 closes underneath the mid-June low, it might spark another round of rash selling, according to Stovall. The index might drop as low as 3,200 as a result, which is in line with the typical historical dip in bear markets that occur during recessions.
Stovall claimed if the S&P 500 drops below the mid-June trough in the days ahead, it might lead to more irrational selling. As a result, the index may fall as low as 3,200, which is consistent with the average historical drop in bear markets that take place during recessions.
Investors worry that a downturn will occur as a result of the Fed’s strengthening even if recent data show that the U.S. economy is doing pretty well.
Stovall added that if the S&P 500 closes below the mid-June low in the coming days, it might trigger another round of irrational selling. As a result, the index may decline as low as 3,200, which is consistent with the traditional historical fall in bear markets that take place during recessions.
Interactions with their clients point out that the majority of stock investors now believe that a rough landing scenario is unavoidable, as per Goldman analyst David Kostin.
Investors are watching for indications of a tipping point, which would suggest a bottom is becoming close.
The Cboe Volatility Index, also known as Wall Street’s dread barometer, rose above 30 on Friday, reaching its highest level since late June, but it was still below the average level of 37, which has historically signalled peaks in selling during market falls since 1990.
A research note from BofA that used EPFR data, showed bond funds experienced outflows of $6.9 billion for the week ending on Wednesday, while equity funds saw withdrawals of $7.8 billion and investors poured $30.3 billion into cash.
The bank said investor mood is at its lowest point since the global financial crisis of 2008
Charles Schwab’s senior research analyst manager Kevin Gordon claimed there is yet more downside to come as a result of central banks tightening monetary policy in an already faltering global economy.
Gordon claimed that in addition to the global slowdown, the Fed as well as other central banks are also contributing to the slowdown, making it harder for them to escape this rut. For risky assets, this mixture is hazardous.
However, others on Wall Street believe the declines might be exaggerated.
The S&P 500 would probably trade between 3,001 and 3,500 in 2023 if there were a recession.