Wilson expects the S&P will trade close to 3,400 by the end of the second-quarter earnings season in mid-August. That would mark an 18% drop from current levels and a 29% decline from the beginning of the year.
“The primary rationale ascribed to this particular rally beyond just an oversold bounce is that the Fed may be contemplating a pause in September,” Wilson wrote. But he warned that “inflation remains too high for the Fed’s liking and so whatever pivot investors might be hoping for will be too immaterial to change the downtrend in equity prices.”
There are growing fears on Wall Street that the Fed may inadvertently trigger a recession with its war on inflation, which climbed by 8.3% in April, near a 40-year high. Other firms forecasting a downturn in the next two years include Bank of America, Fannie Mae and Deutsche Bank. Subramanian put the odds of a recession around 40%.
Economic growth in the U.S. is already slowing. The Bureau of Labor Statistics reported earlier this month that gross domestic product unexpectedly shrank in the first quarter of the year, marking the worst performance since the spring of 2020, when the economy was still deep in the throes of the COVID-induced recession.
Fed policymakers already raised the benchmark interest rate by 50 basis points earlier this month for the first time in two decades and have signaled that more, similarly sized rate hikes are on the table at coming meetings as they rush to catch up with inflation. Chairman Jerome Powell recently pledged that officials will “keep pushing” until inflation falls closer to the Fed's 2% target.
Why do they keep the fear tactics going? Do they really want to warn/help us or do they all just want us to panic sell to bring the market lower so they can scoop up all the cheap shares and get filthy rich all over again? I’ll keep buying cheap shares and play the SPXU call option to hedge myself both ways.
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