The S&P 500 just suffered its worst April performance since 1970, plunging into its second correction of the year – now many pundits are lowering their projection for the index this year.
Bank of America analysts led by Savita Subramanian cut their year-end outlook for the S&P 500 by 100 points to 4,500, which would mark a drop of more than 6% from the start of 2022. In April, the benchmark S&P index fell about 8.8%. . It’s down about 13.48% so far this year, indicating the market has priced in about a third of the chance of a recession, BofA analysts said.
FED HIKES INTEREST RATES FOR FIRST TIME IN 3 YEARS, PLANS 6 MORE HIKES AS INFLATION RISE
“The specter of a recession looms,” Subramanian wrote. “And so we’re moving from underweight to overweight defensive, torque-generating consumer staples.”
Several threats to the outlook include deteriorating economic growth in China, the Russian invasion of Ukraine on Feb. 24, and an increasingly hawkish Federal Reserve seeking to aggressively tighten monetary policy to rein in the economy. inflation.
“All of this against the backdrop of a cyclical peak in the S&P 500 EPS in the face of secular margin pressure (de-globalization), still-high valuations and a Fed cut still in play,” Subramanian said.
The note comes amid growing fears of a Fed-triggered economic recession on Wall Street as it seeks to tackle inflation, which is at its highest level since December 1981. Policymakers raised interest rates a quarter of a percentage point in March and have since signaled that larger half-point increases are likely in the coming months, starting in May.
“It is appropriate to go a little faster,” said the Fed chairman Jerome Powell said last month during a panel discussion at the spring meetings of the International Monetary Fund and the World Bank. “I also think there’s something to the idea of front-loading whatever accommodation one feels is appropriate. So that indicates 50 basis points are on the table.”
Traders are now pricing in a 100% chance of at least a half-point rate hike when policymakers meet this week. It would be the first time since 2000 that the US central bank would raise the federal funds rate by 50 basis points.
Some economists believe the Fed has waited too long to deal with soaring inflation, while others have expressed concern that moving too quickly to stabilize prices risks triggering an economic recession. Rising interest rates tend to create higher rates on consumer and business loans, which slows down the economy by forcing employers to cut spending.
Powell brushed off fears that further central bank tightening could trigger a recession and maintained optimism that the Fed can strike a delicate balance between controlling inflation without crushing the economy.
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Still, he acknowledged the difficulty of the task at hand and said it was “absolutely essential” for central bankers to restore price stability.
“Our goal is to use our tools to get demand and supply in sync, so that inflation gets back in place, without a slowdown that equates to a recession,” Powell said. “I don’t think you’ll hear anyone at the Fed say it’s simple and straightforward. It’s going to be tough.”