A bear market came close to ending Friday’s session, adding fuel to a sharp debate over whether the market is sinking or whether it is preparing for hibernation as fears of a recession rise.
On Friday’s low, the S&P 500 was 20% below its peak. And when it closes a little higher — bypassing the technical definition of a bear market দ্রুত a heated debate between bears and bulls over the fate of the stock market ignites a narrow miss fire.
The Bulls are optimistic that the recession is a short-term contraction and that the stock market has already risen in sharp recession. Optimists believe that in the next few months, inflation will begin to cool and the Federal Reserve will relax its tough policy.
They also point to the continued strength of the labor market, as evidenced by a low unemployment rate and a few weeks of unemployment claims that have hovered around their lowest point in decades. And with a strong labor market comes a healthy consumer. Indeed, April retail sales met consensus expectations, growing 0.9% month-on-month.
But bearish analysts have shrugged off their call, urging investors to sit out for the next few months as fears of a recession intensify.
“We believe that adversity against the Fed has been heavily stacked in their bids to avoid a recession,” Wolf Research analysts, led by Chris Senayek, wrote in a note. “While the vast majority of street economists do not agree with us, markets are increasingly coming into our view.”
Many economists have suggested that the United States has already reached the peak of inflation, with the consumer price index showing signs of declining in April. Nevertheless, inflation is nearing its highest point in decades, and Wolf Research team estimates that the figures for the next quarter could be hotter than expected.
Perhaps more worrying, analysts write, is that inflation is becoming more embedded in the economy as a whole. This creates a series of negative feedback loops that will push prices even higher after 2022 and persuade the Fed to tighten and tighten longer than Wall Street’s current forecast, they added.
These trends do not bode well for the stock market, which has already suffered throughout the year.
“Our assumption is that the next step in the beer market is going to be driven by the growing recession risk (our base case remains 2023) and downward earnings correction,” they wrote.
A recession will have a devastating effect on consumer health, lead to negative real income growth and discretionary purchases and lower consumer confidence. And while consumers have better cushions against the recession two years after the epidemic, that cushion may not be enough to get out of the recession, analysts say.
While Bull believes the stock market has already set a price in anticipation of a recession, Wolf’s team believes that equities still look expensive on several metrics – and that they will become more expensive as analysts lower their earnings expectations. They are predicting a trough fall from the top of at least 15% of S&P 500 operating earnings per share.
Some see imperfections as opportunities to buy, especially in the notoriously expensive technology sector. Jeffery analysts, for example, were bullish on technology stocks on Monday, saying there could soon be a trade-off rally for technology.
Wolf analysts say the sector’s earnings will be cyclical again as the economy enters recession. The key to buying circular stocks is to buy at the right time. So far, it’s “too early.”
Write to Sabrina Escobar at [email protected]