The S&P 500 closed on Friday (20th) out of a bear market, but it still closed in the black for seven consecutive weeks, writing the longest losing streak since the dotcom bubble in 2001. Wall Street analysts’ views on the next move in U.S. stocks are quite polarized, just as disorienting during the Covid-19 outbreak.
The S&P 500 fell into a bear market on Friday, falling 20% from its recent high, but struggled in the end, gaining 0.015% to $3,901.36, bringing its decline from its Jan. 3 high to $3,901.36. 18.7%. Still, the S&P 500 is down more than 3% this week, closing in the black for seven straight weeks.
The culprit of this heavy blow to U.S. stocks is a combination of multiple factors, first and foremost the hawkish Federal Reserve (Fed), in addition to the Russian-Ukrainian war, deteriorating supply chain problems, and the recent 20-year high. U.S. stock valuations.
Analysts from a number of investment institutions, including Wells Fargo Bank, Deutsche Bank, and BMO Capital Markets, have recently revised down their target prices for the S&P 500, but the gap between the latest forecast points is 37%. Such extreme divergence has been second only to the March 2020 US stock market crash in the past 10 years.
Evidence of investor confusion and frustration can be seen everywhere. The recently sold Ark Innovation ETF (ARKK-US) and growth stocks closed in the opposite direction from the previous day on Friday, with a shock of more than 1%. The once-sleepy Walmart (WMT- US), Target (TGT-US) and other companies tumbled, and consumer staples stocks tumbled more than 8% in five days, not at all like a safe haven during market turmoil.
The bear market has only reached one-third of the way?
As for where U.S. stocks may go, pessimists believe that a recession is inevitable after the Fed declared war on inflation, while optimists believe that the Fed is making progress toward its goal.
Quincy Krosby, chief strategist at LPL equities, said: “The nature of the uncertainty we face has changed, but the work of Wall Street analysts is more difficult than it was during the epidemic. There is zero certainty about the direction of the economy. Some are in the ‘recession’ camp, some are in the ‘soft landing’ camp, not to mention everything in between.”
George Ball, chairman of Sanders Morris Harris, said: “The so-called bear market lasts an average of one year (338 days to be more precise). Judging by this, the decline has only reached a third of the time, so there is still a lot of room to fall. , although there will be a rebound in between.”
U.S. stocks have plummeted, and bonds have also fallen deep, meaning that financial conditions are tightening rapidly. The Financial Sentiment Index, tracked by Goldman Sachs, has fallen 1 percent since the Fed raised interest rates in March.
Optimists point to several instances of excessively bearishness in the past, such as Oppenheimer analyst John Stoltzfus, whose latest end-of-year target price for the S&P 500 is 5,330, the highest of any forecast.
“It’s like early 2009 (the start of a long-term bull market) and nothing is clear, or 1994 (the Fed started a cycle of rate hikes and managed to avoid a recession), and 2018,” said Stoltzfus, who has been in the industry for 39 years. 4 quarters (Fed pauses rate hikes, monetary easing the next year). If you’re pessimistic in these moments, you’ll miss the big rally when things get clear.”