The stock Exchange could face another tumultuous year in 2023, with the S&P 500 correcting dramatically if the United States falls into recession, according to strategists at Bank of America.
In an analyst note on Monday, strategists warned that the benchmark could fall as much as 3,240 points, or about 20%, from current levels if the United States enters a recession in the coming months. come.
“History suggests that if the US economy experiences a recession, the SPX bottoms out during the recession and not before,” the note reads. “Only the recession from March 1945 to October 1945 saw the SPX rally before and throughout the recession.”
The S&P has already fallen about 16% this year as investors weigh on worries about stubbornly high inflation, steeper interest rate hikes and the likelihood of an economic slowdown next year. But Bank of America strategists warned on Monday that there could be further declines ahead for the market.
“The mean and median SPX declines associated with recessions are 32.5% and 27.1%, respectively, and lasted 13.1 and 14.9 months, respectively,” they wrote. “This equates to SPX 3,500 to SPX 3,240 from February to April 2023, which aligns with the SPX peak at the minimum declines associated with the crossing of the 12-month MA below the 24-month MA on the SPX. “
Despite a slight deceleration in consumer prices last month – inflation rose 7.7% a year, the slowest pace since January – there is still a growing consensus on Wall Street that the Fed will trigger a recession raising interest rates at the fastest pace in decades.
The Federal Reserve in November approved a fourth straight rate hike of 75 basis points, taking the federal funds rate to a range of 3.75% to 4% – well below restrictive levels – and showed no sign of stop rate hikes.
Although policymakers signaled a preference for a lower rate hike of 50 basis points at their meeting next week, they also signaled an appetite for a higher peak interest rate that could further constrain lending. ‘economic activity.
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“The time to moderate the pace of rate hikes could come as early as the December meeting,” Fed Chairman Jerome Powell said during a speech in Washington last week. “Given our progress in tightening policy, the timing of this moderation is far less important than the questions of how much further we will need to raise rates to control inflation, and how long policy will need to be maintained. at a restrictive level.