The top charts guru at JPMorgan has issued a warning: be ready for a 23% drop in the S&P 500 by next summer and the start of a recession.
Jason Hunter said on CNBC’s “Squawk Box” on Monday that the stock market is incorrectly pricing in a “soft landing” for the US economy, in which the Federal Reserve manages to stifle inflation without sparking a recession. However, the head of technical strategy at the bank predicted that soon investors would realise the picture is worse than they had anticipated, leading to a stock sell-off.
According to Hunter, “you almost always end up in a bear market that’s linked to a recession,” citing the inverted yield curve that is now in place as a trustworthy sign of bad economic news.
To combat record inflation, the Fed raised interest rates from around zero last spring to almost 5% today. In an effort to enhance asset values and spur development, a large number of stock investors are wagering that the US central bank will lower rates in 2019. They could be overly optimistic, though, given the Fed is not expected to ease monetary policy until the economy has cooled.
Hunter stated, “We’re going to have to go to stall speed.” “That’s what enables the Fed to start easing in the second half of the year.”
“The market’s going to have a significant gut check of whether inertia’s going to carry to a recession or not,” he said. “Stocks should pull back.”
According to Hunter, the benchmark S&P 500 index will probably “retest the lows” of 2022 by falling below 3,500 by the middle of the following year. He said that his signalling algorithms are already blinking red, indicating that investors should reduce their stock holdings and begin hedging. He continued, saying that he thought cash and 2- or 5-year Treasuries were considerably safer than stocks today.
On the plus side, Hunter predicted that in 2025, equities may reach new highs as a result of decreasing interest rates.
Regarding the direction the market is going in the future, Wall Street experts are divided. For instance, Lori Calvasina, head of RBC’s US equities strategy, told Yahoo Finance on Monday that the S&P 500 may reach a record high of 5,300 points in the upcoming year.