“Singing bad” one after another! There is a new mainstream investment bank prediction: the pain of US stocks has just begun

U.S. stocks were slaughtered this Wednesday, the Dow lost thousands of points, and the S&P 500 fell by more than 4%, the largest decline in the past two years. The Nasdaq 100 fell 5%, matching its deepest decline since September 2020, set in early May.

On Thursday, U.S. stocks fell again, the Nasdaq turned lower in late trading, the Dow fell by more than 230 points, and the S&P fell about 19% from its record high in January, and is away from a 20% decline from a 52-week high. A bear market is only one step away.

This is not over yet, and it seems that continuing to sing about U.S. stocks is becoming the new “fashion” on Wall Street. Another mainstream investment bank released a research report on Thursday saying that the sell-off in US stocks is far from bottoming out, and some people even pessimistically predicted that the pain of US stocks has just begun, and the S&P will inevitably fall into a bear market again after 2020.

Maneesh S. Deshpande, head of U.S. equity strategy at Barclays, said that multiple factors such as the repeated outbreak of the new crown epidemic, the tendency of the Russian-Ukrainian conflict to evolve into a “protracted war”, and the aggressive hawkish stance of the Federal Reserve have affected the profit margins and long-term profitability of U.S. companies. is taking a hit:

Given the many negative short-term catalysts for the S&P 500, we believe risks remain heavily skewed to the downside.

He believes that the fiscal stimulus introduced in the United States during the epidemic has led consumers to consume record amounts of goods in the “stay-at-home economy” boom, which has translated into strong corporate earnings over the past two years. Now that consumer spending is shifting back toward services, the support for corporate earnings is not as strong. In particular, the poor first-quarter report of star technology stocks that soared during the epidemic has become a key factor in dragging down US stocks. The “FAANG” dragged down the S&P market the most in seven years. And the above negative logic will continue.

On Tuesday and Wednesday, the top two U.S. retail department store giants, Wal-Mart and Target, both suffered their biggest one-day declines since 1987 due to poor financial reports, which embodies what Barclays said in a research report: “Inflationary pressure is finally weighing on U.S. companies. Profitability impacts.” The research report pessimistically predicts that although S&P constituents’ profit margins and forward earnings have remained resilient in the face of high inflation over the past year, this situation seems to be gone forever.

Deutsche Bank also lowered the official target point of the S&P 500 in the baseline scenario to 3,650 after the “avalanche” of U.S. stocks on Wednesday, representing a 24% overall drop from the 52-week high set in January this year, which is also in line with the economic recession. The U.S. stock market fell on average. The reason for the cut is also slowing economic growth, and the resulting drop in profitability would push down “valuable” stocks.

Binky Chadha, chief global strategist at Deutsche Bank, warned that if the U.S. economy does fall into a recession, it will bring even greater stock market declines, and the S&P 500 may fall as low as 3,000 points, or 40% from its high at the beginning of the year. :

If we are about to enter a recession, we will see the market sell off well above average. And since the initial stock market valuation was too high, a sharp 35% or even 40% retracement from all-time highs is not out of the question.

Unless the labor market holds up and economic growth doesn’t take a big hit, the S&P is on track for a rebound to 4,700 or 4,800 by year-end.

Financial media CNBC analyzed that U.S. stocks have come under pressure this year, with investors first fleeing from high-value technology/growth stocks with weak profitability, and the sell-off has since spread to more sectors of the economy, including banking and retail, as investors are driven by recession. terrified.

Jonathan Krinsky, chief market technology officer at BTIG, pointed out that the reason for predicting a continued decline in the stock market is that “there really seems to be nowhere to hide right now.” Growth stocks, which had been under pressure for weeks, are still being sold as consumer discretionary stocks sell off sharply this week:

This shows that liquidity in the stock market is quickly turning into cash, rather than rotating between different sectors as before. It also confirms that it is much easier to sell on rallies in a bear market than to buy on dips.

The flight behavior of the above-mentioned market participants is also confirmed in the latest research report of Goldman Sachs, that is, “the selling behavior of investors in the US stock market has shifted from certain categories of stocks to other categories of stocks, indicating that they are preparing for a larger economic downturn. Possibilities are priced in.” According to Refinitiv statistics, nearly two-thirds of S&P 500 stocks have fallen more than 20% from their 52-week highs and entered a bear market, showing the breadth of the sell-off.

Moreover, retail investors who have gone against the current and bought on dips in the market slump since the epidemic have also sold off, and U.S. stocks have lost another important supporting factor. This week’s retail sell-off was the largest since the outbreak in Europe and the United States in March 2020, according to JPMorgan Chase & Co.

Concerns about “stagflation” have risen to the highest level since the 2008 financial crisis, prompting investors to hoard cash and reduce their holdings of stocks, according to Bank of America’s latest survey of fund managers.

Still, some other top Wall Street strategists believe the level of pessimism about the outlook for the U.S. economy and its stock market may be overdone.

David Kostin, chief U.S. equity strategist at Goldman Sachs Research, Marko Kolanovic, chief global market strategist at JPMorgan, and Michael Strobaek, global chief investment officer at Credit Suisse, all share the view that investor fears of an impending U.S. recession are overblown , but left room for a recovery in the stock market.

Goldman Sachs strategists released a research report on Wednesday, saying that the rotation of sectors within the US stock market indicates that investors believe that the possibility of an economic downturn is higher, but this is contrary to the strength of recent economic data:

The relative performance of cyclical versus defensive stocks suggested a ‘sharp slowdown in growth’ which was not supported by ISM manufacturing data. Economists at Goldman Sachs still see a 35% chance of a U.S. recession within the next two years.

The S&P 500 is currently trading at 16.5 times forward 12-month earnings, the lowest since April 2020 and below the 17.04 times average over the past decade.

But overall, Wall Street is most worried about a recession, and the Fed’s strong turn hawk, which may directly contribute to the recession. That makes some strategists less optimistic, arguing that stocks will fall further as central banks shut down the “currency faucet” that has fueled the U.S. stock bull market for most of the past decade.

Wall Street has mentioned that the former and current CEO of Goldman Sachs, the chief investment officer of the asset management giant Guggenheim, and the legendary investor who successfully predicted two market crashes, GMO co-founder and chief strategist Jeremy Grantham and other Wall Street bigwigs They were “pessimistic one by one” and even made an astonishing prediction that the Nasdaq would plummet by 75% this summer. The main reason is that the Fed’s aggressive policy of “receiving water” to suppress inflation that has not been encountered in 40 years is full of “unknown consequences”.

Charu Chanana, market strategist at Saxo Capital Markets, put it bluntly:

Financial conditions are just starting to tighten. The market is still digesting all the complex nuances between the pandemic, supply issues and inflation – and now there’s the risk of stagflation – I think the market downturn is just getting started!

This article is reprinted from: https://news.futunn.com/post/15714533?src=3&report_type=market&report_id=206149&futusource=news_headline_list
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