A growing number of Wall Street strategists believe last week’s stock market rally was an illusion, as stubbornly high inflation is putting the U.S. economy and corporate earnings growth at risk. At present, traders’ expectations that the US Federal Reserve (Fed) will suspend interest rate hikes in September or only increase by 25 basis points (1 yard) have weakened. Dovish officials also said that the possibility of suspending interest rate hikes in September has nothing to do with the Fed’s rescue. .
The hawks and doves of the US Federal Reserve expressed their views on monetary policy in succession in the past two days. Hawkish and voting Fed Governor Christopher Waller said he supports raising interest rates by 50 basis points (2 yards) in the next few meetings until inflation noticeably cools.
Raphael Bostic, the dovish president of the Atlanta Fed, said in an interview:He had previously said that a possible hold on rate hikes in September should not be interpreted as a “Fed put”, where a sharp drop in the stock market prompted the central bank to bail out the market.He does not have the right to vote this year and only participates in discussions.
After Waller communicated his determination to suppress inflation, the three major U.S. stock indexes, which had just returned to trading following a holiday in Memorial City, fell once more on Tuesday, and U.S. Treasury yields jumped.
Futures traders now see a more than 50 percent chance of a 2-yard rate hike in September, according to the CME Group’s FedWatch tool.
The Fed will meet on June 14-15 and release updated economic forecasts and a dot plot of interest rates. Officials expect the federal funds rate to hit 1.9 percent by the end of the year, before rising to 2.8 percent in 2023 and 2024, according to a March dot plot.
Tom Graff, chief investment officer at Facet Wealth, said: “The market is waiting for the light on the end of the inflation/Fed rate hike. The stock market’s decline today has to do with the fading of expectations. The rebound in the stock market last week tells us that if With inflation under control, stocks have room to rise. The tail risk is that if policymakers fail to bring inflation down, they will have to raise interest rates well above what most people think.”
Wall Street remains pessimistic regarding U.S. stock market outlook
A growing number of analysts on Wall Street, including investment banks such as Morgan Stanley, Bank of America and Oppenheimer, believe last week’s rally may have been short-lived.
One of the best-known bears, Morgan Stanley Michael Wilson, said the recent rally was because the market was oversold, and he believes corporate earnings forecasts are still too high,The S&P 500 will fall to nearly 3,400 by mid-August (the end of the second-quarter earnings season), representing a further 18% decline from Friday’s levels.
Jonathan Krinsky, chief market technical analyst at BTIG, predicted that,S&P 500 might fall to 3400-3500 in late summer or early fall, but will bounce back before thenTo 3800 to 4250 points.
Sam Stovall, chief investment strategist at CRFA Research, said that the estimated price-to-earnings ratio for the S&P 500 reached 16.8, the lowest since early April 2020 and 1.1% below the 20-year average. He believes that this represents a short-term market rebound The conditions are ripe, “but we question the staying power of this rebound.”
