The US stock market hasn’t found a bottom yet, if history is any indication.
(Bloomberg) — The US stock market hasn’t found a bottom yet, if history is any indication.
The S&P 500 Index hit a low only after the Federal Reserve stopped raising interest rates in previous hiking cycles, according to data compiled by Bloomberg, implying more downside if the trend holds true. Strategists at JPMorgan Chase & Co. and Morgan Stanley are among those warning of further stock losses.
US equities rallied 17% from an October low to a high in early February, before gains began to fade as traders bet rates will remain higher for longer than previously expected. Such wagers have strengthened recently on strong data and hawkish comments from policymakers. Treasury yields rose across the curve on Tuesday ahead of data showing the Fed’s preferred measure of inflation.
There will either be “a recession soon, in which case earnings come down faster, or we get a stronger economy in the near-term, requiring a more aggressive Fed, a more aggressive de-rating and a bigger recession later,” said James Athey, investment director at Abrdn. “To be buying equities here is to be dispensing with reality in favor of a fairy story.”
Morgan Stanley’s Wilson Calls Time on Rally for Pricey US Stocks
Morgan Stanley strategists are also sounding the alarm, with a team led by Michael Wilson saying the risk-reward for US equities is now “very poor.” Equity risk premium has entered a “death zone,” they wrote, with stocks turning the most expensive since 2007 based on that measure.
According to JPMorgan’s Mislav Matejka, the central bank is likely to pivot only in response to a much more negative macroeconomic backdrop than markets are currently expecting. He sees the rally fading through this quarter.
“US 10-year Treasury yields are approaching 4%, which means the market believes that inflation and rates will be higher for longer,” said Sharif Farha, head of investments at HB Investments in Dubai. “Like many investors, we are in wait-and-see mode and prefer bonds over equities.”
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