(Bloomberg) – Get ready for a new downturn on the world’s most-watched stock index, as economic growth threatens to spiral and the Federal Reserve launches its biggest policy-tight campaign in decades.
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With the S&P 500 flirting with a bear market last week and with a loss of over $ 1 trillion, participants in the latest MLIV Pulse survey feel there is more pain to come.
With an average estimate of 1,009 respondents, the gauge is likely to continue to fall this year before dropping to about 3,500. This represents a decrease of at least 10% from Friday’s close of 3,901 – and a 27% drop from the January high.
All of the Fed’s spending stance, supply chain chaos, and intense business cycle threats are undermining confidence in corporate America’s profit machine, while equity valuations are sinking.
After the longest run of weekly losses in more than two decades, only 4% of MLIV readers think the S&P 500 has found a bottom for the year based on closing levels. And a handful see 2,240 lose a historic path – re-examining the epidemic low.
Money managers have endured even worse drops in the 2020 coveted-stimulated noise, but with the projected losses on this scale, there is little comfort.
“I still think the worst is not behind us,” Sabita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Corporation, told Bloomberg Television on Friday. “There’s a wide fog of negative feelings.”
Retailer Target Corporation and network-equipment company Cisco Systems Inc. have seen preferred profit ratings as investors took the ax for share prices last week. Short interest in a popular exchange-traded equity fund has recently moved closer to the level seen in March 2020.
The renewed Haven bid for U.S. government bonds suggests that money managers are increasingly fearful of economic downturns due to the lockdown in China and the protracted Russia-Ukraine conflict.
With the retail-stock recession starting last week, respondents became more bearish towards the end of the May 17-20 voting period. The average MLIV professional in the research, risk management and sales community was more pessimistic than their peers in portfolio management and sales-side trading. (Average data can be skewed by external view.)
Meanwhile, Marco Kolanovich of JPMorgan Chase & Co. is easing fears of an impending US recession, and moderate estimates by prominent Wall Street strategists suggest that the index, which the market expects to bounce back later this year, will close at 4,800 this year. For Christina Hooper, when an economic downturn is “at a commendable price,” she doesn’t see it happen.
“The sentiment is very negative, which supports our near-term position,” said Invesco Ltd.’s chief global market strategist.
Yet as central bankers seek to engineer the financial situation to tighten to moderate volatility, the risk of further cross-asset turmoil is very real.
When asked what would happen before the Fed’s move to dovish policy, 47% of respondents said they expected a 30% drop from the S&P 500’s peak, while the same proportion said U.S. unemployment would rise to 6% from the current 3.6%.
More than 40% expect the investment-grade credit spread to exceed 250 basis points before the start of the financial-easing cycle, where one in four Americans sees a 20% drop in home prices.
To find out which asset class will see further declines before the risk-aversion cycle begins, readers have unequivocally cited equities, while housing, commodities and bonds have also accumulated.
Meanwhile, about 31% of respondents said the end of the Fed’s hiking cycle would be the biggest impetus to growth, and 27% indicated a preference for a scenario where China ends its zero-cove policy.
One in five said a large growth dividend would come when the war in Ukraine ended, and the same proportion voted in favor of reducing crude oil prices to 70 70 a barrel.
For more market analysis, see the MLIV blog. For previous surveys, and to subscribe, see NI MLIVPULSE.
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