Anticipate a significant downturn in the S&P 500, with a potential 23% drop by mid-2024, coupled with the onset of a recession, as forewarned by JPMorgan's leading chart analyst.
Expect the S&P 500 to experience a sharp decline of 23% by the upcoming summer, with a recession likely to ensue, according to JPMorgan's foremost chart expert.
The current market sentiment is erroneously optimistic about a smooth transition for the U.S. economy, envisioning a scenario where the Federal Reserve effectively curtails inflation without triggering a recession. Jason Hunter, speaking on CNBC's "Squawk Box," cautioned that this perspective is overly sanguine, and a correction in stock prices is imminent, as opined by the bank's chief of technical strategy.
Jason Hunter highlighted, "Bear markets, typically linked with recessions, are a more common outcome than not," referencing the present inverted yield curve as a credible sign of looming economic distress. "The likelihood is heavily skewed towards a severe downturn."
The Federal Reserve has escalated interest rates from near-zero last spring to over 5% presently, aiming to manage unprecedented inflation. Several stock market participants are gambling on the Fed to reduce rates next year, to invigorate asset values and stimulate economic growth. This outlook, however, may be overly hopeful, as the Fed is expected to maintain its stringent monetary policy until there's a noticeable economic slowdown.
Hunter stated, "We must reach a near-stagnation point. This will facilitate the Fed's shift to a more relaxed policy in the latter half of the year."
"The market is poised for a critical reassessment, to determine if this inertia will lead to a recession," he added. "A pullback in stock prices is likely."
He forecasts the S&P 500 to fall to around 3,500 by mid-next year, marking a "retest of the 2022 lows." His analytical models are signaling caution, advising investors to reduce stock holdings and increase hedging. He recommends cash and short-term Treasuries (2- or 5-year) as safer alternatives compared to stocks at this juncture.
On a brighter note, Hunter anticipates that stocks could reach new peaks in 2025, buoyed by lower interest rates.
Opinions among Wall Street strategists vary regarding the market's future trajectory. For instance, RBC's head of U.S. equity strategy, Lori Calvasina, suggested to Yahoo Finance that the S&P 500 might attain a record level of 5,300 points next year.
