According to Morgan Stanley analysts, the S & P 500 has been crushed by widespread sales this month, and the benchmark index could fall further if the economy goes into recession.
In a recent analyst note, Morgan Stanley’s strategist, led by Mike Wilson, said the risk of a recession was significantly higher and stock prices could fall another 20% if economic growth stagnated. Stated.
“At this point, given the Fed’s inflationary plight, the recession is no longer just a tail risk,” Wilson wrote in an analyst note. He predicted a 35% downturn next year. This is a significant increase from the previous estimate of 20%.
The index has already plummeted in recent weeks as a concern Inflation hotter than expectedRising interest rates and the darkening of the economic outlook continue to weigh on the market. The S & P 500 has officially declined by about 21% in the bear market territory since the end of 2021, but Wilson said the market is not really under threat of recession.
Federal Reserve raises interest rates at 75 basis points in historic moves to combat inflation
According to Wilson, if the US economy actually begins to shrink, the S & P 500 could drop by about 20% from current levels and plummet to about 3,000.
Wilson sees more of the downsides of stocks, even if he can escape the recession. The S & P benchmark could fall another 7% to 10% as the market is digesting the sluggish corporate profits.
“We are aware that the bear market is already suffering a lot, but we still can’t be bullish,” he said. “We expect recession risk to rise in the face of very stubborn inflation measurements, and risk compensation to be significantly lower in the next three to six months.”
Analyst notes Federal Reserve Board voted to raise interest rates For the first time since 1994, it has risen 75 basis points, emphasizing how serious policymakers are in tackling the inflation crisis after a series of alarming economic reports. With this move, the federal funds rate, a major benchmark, has fallen between 1.50% and 1.75%, the highest since the pandemic began two years ago.
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There is growing concern that the Fed may cause a recession. Raising interest rates tends to raise interest rates on consumer and corporate loans, slowing the economy by forcing employers to cut spending. Bank of America, Fannie Mae and Deutsche Bank are one of Wall Street companies forecasting a recession over the next two years.
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Federal Reserve Board Jerome Powell The US central bank’s inflationary war has admitted that it could force policy makers to raise interest rates and put the US economy in recession.
“That’s certainly possible,” Powell told lawmakers Wednesday, testifying at Capitol Hill. “We are not trying to cause a recession and we do not think it is necessary, but above all else, to really restore price stability for the benefit of the labor market. Is absolutely essential. “