Bank of America analysts cut S&P 500 forecasts as ‘ghost of recession’ looms

The S&P 500 just suffered its worst April performance since 1970, falling into its second correction of the year — and now, many experts are lowering their expectations for the index this year.

Bank of America analysts led by Savita Subramanian cut their year-end forecast for the Standard & Poor’s 500 Index by 100 points to 4,500, which is a more than 6% drop from the start of 2022. In April, the benchmark S&P index was down about 8.8%. It’s down about 13.48% so far this year, indicating that the market has identified about a third of the chance of a recession, according to BofA analysts.

The bank raises interest rates for the first time in 3 years, and evaluates 6 more hikes with inflation

“The specter of economic stagnation looms,” Subramanian wrote. “So we’re shifting couple defense consumer goods from underweight to overweight.”

There are many threats to the outlook, including deteriorating economic growth in China, the Russian invasion of Ukraine on February 24, and an increasingly hawkish Federal Reserve looking to tighten monetary policy aggressively in order to tame inflation.

“This is all on the back of a cyclically peaked S&P 500 EPS that faces secular margin pressures (declining globalization), valuations that remain high, and the Fed’s lingering taper,” Subramanian said.

The note comes amid growing concerns on Wall Street about the economic stagnation wrought by the Federal Reserve as it looks to combat inflation, which has reached its highest level since December 1981. The sharpest increases of half a point are likely in the coming months, starting in the month of August. mayo.

“It is appropriate that we move a little more quickly,” the Fed chief said Jerome Powell Last month during a panel discussion at the Spring Meetings of the International Monetary Fund and the World Bank. “I also think there’s something to the idea of ​​forward-loading wherever one sees fit. So this points to the direction of 50 base points on the table.”

Traders are now pricing in a 100% chance of a price jump of at least half a point when policy makers meet this week. This will be the first time since 2000 that the US central bank will raise the federal funds rate by 50 basis points.

US economic growth is likely to slow as 2020 comes to a close, but a growing number of economists expect the economy to return to its pre-pandemic strength by the second half of next year. (AP Photo/Mark Lennihan/AP Newsroom)

Some economists believe that the Fed has waited too long to confront the inflationary explosion, while others have expressed concerns that moving too quickly to stabilize prices could trigger a recession. Higher interest rates tend to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending.

Powell countered concerns that further tightening by the central bank would lead to a recession and maintained optimism that the Fed could strike a delicate balance between taming inflation without crushing the economy.

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However, he acknowledged the difficulty of the task ahead, and said it was “absolutely necessary” for central bankers to restore price stability.

“Our goal is to use our tools to resynchronize demand and supply, so that inflation returns to where it is without slowing down to stagnation,” Powell said. “I don’t think you’ll hear anyone at the Fed say that’s straightforward. It’s going to be difficult.”