Source: Wind
Hong Kong’s Wind news agency reported that the market was hoping for a soft landing for the economy, supported by preliminary data from the May jobs report. But the problem is that signs of a soft landing could make the Fed more hawkish.
For a soft landing, markets want to see data that shows the economy is cooling, but not too much. There are fears that the Fed will keep raising interest rates. If the economy is too sluggish, there is a fear of a recession. It turns out to be very difficult to balance.
With the S&P 500 up 350 points or 10% over the past 10 sessions, some might think the market has bottomed, but it’s not. Doubt remains the norm today. Commentary from Piper Sandler technical analyst Craig Johnson is representative: “Overall, we remain skeptical about the sustainability of this recovery due to the lack of evidence of a bottom. In a worst-case scenario, we Think 3500 is the downside target,” which is about 16% below where we are now.
No one believes in bottoms because volatility is so high. “Dan Weiner, head of the advisory team at Vanguard Investors, points out that historically, the S&P 500 has had a daily range of 0.7%, but this year it has averaged 1.2%. He noted that when the S&P 500 was in A drop of more than 3.5% in a day or a few days is usually an opportunity not to buy.
“If the data is very strong, it could show that the Fed has a lot of work to do in quelling inflationary pressures in the economy, while a very negative data could support the view that the U.S. is rapidly slipping into recession,” Goldman Sachs said. Chris Hussey said in a report.
Fed officials are closely monitoring labor market conditions and deciding how much and how fast to raise interest rates in the coming months. One point of concern for officials is that a strong labor market will fuel inflation as competition for workers improves wage bargaining power. Fed Vice Chair Lael Brainard said on Thursday she supported plans to raise rates by half a percentage point at a meeting later this month and at a July meeting.
Hedge fund manager Dan Niles believes that U.S. stocks are in a bear market, with further volatility likely ahead, albeit with some short-lived rallies. Amid a troubling macro backdrop and an increasingly negative corporate outlook, U.S. stocks have endured a sharp sell-off this year.
Trading in U.S. stocks remained choppy this week, even as the S&P 500 ended a seven-week losing streak on Friday. U.S. stocks rose on Thursday, as the three major indexes snapped a two-day losing streak. But Niles believes last week’s rally was “nothing more than a bear market rally.”
“I think you have to look at it from a macro perspective, which is that the strongest rallies are during bear markets,” Niles said. He noted that the S&P 500 had five rallies of 18%-21% during the global financial crisis and tech bubble, before eventually dropping about 50% on both occasions.
“So, we expect the S&P 500 to be down 30% to 50% from its peak earlier this year sometime next year.”
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