S&P 500 May Revisit June Lows ‘Sooner Than Many Expect’ – Strategist

S&P 500 May Revisit June Lows ‘Sooner Than Many Expect’ – Strategist

Written by Sinad Karahimetovic

US stocks closed sharply lower yesterday after the Fed delivered 75 basis points and suggested it should follow up with the fourth rally of that magnitude to finally bring down inflation.

Both closed down 1.7%, while the index was down nearly 1.8%. The Fed’s “dot chart”, as well as President Powell’s comment during the press conference, prompted Wall Street strategists to revise their expectations for higher interest rates.

Moreover, some analysts are calling for a sharper-than-expected decline in stocks as the Federal Reserve continues to tighten monetary policy aggressively.

Jonathan Krinsky, chief market technician at BTIG, sees the risks of stocks falling “faster than many expect”.

We believe pain trading is less. Given today’s downtrend reversal and the continued lack of any signs of a capitulation, we believe the path to the June lows (3,640) may be faster than many expect,” he told clients after the FOMC meeting.

Other strategists advocate a more defensive stance within stocks with increased downside risks.

“At the sector level, we reiterate our most favorable views of consumer staples and healthcare — two sectors less closely related to economic activity. We also love the energy sector,” UBS strategist Solita Marcelli, told clients in a note.

“Too much monetary tightening is unsustainable for stocks,” says Adam Crisavoli of Vital Knowledge. As a result, the S&P 500 simply “would not be able to go up with the money-rate cycle ceiling at 4.5% or higher”.

Chrisavoli also affected the discretionary cuts that may push the next stage down for the shares.

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“A few months ago, the best case scenario was $240 and 18x (putting the SPX to ~4,300) but amid deteriorating earnings expectations and higher rates, it’s really hard to argue for anything over $230 17x (or ~3,900) , just above Wednesday’s close), Crisavoli told clients.

US stocks are trading slightly higher in pre-market Thursday.

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