No Bottom in Selling Until These 5 Things Happen
- The stock market’s volatile decline is likely to continue as Monday’s rally was a “headache”, according to Stifel.
- The company expects the S&P 500 to fall to 4,200, which represents a potential decline of 5% from Monday’s close.
- These are the five things that need to happen before the stock market crashes, according to Stifel.
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U.S. stock market investors shouldn’t expect an immediate recovery after Monday’s volatile trading session, in which the Nasdaq 100 fell nearly 5% intraday before ending the day on a high. positive note.
That’s according to Wall Street research firm Stifel, which said in a note that Monday’s surprising rally was a “headache” and the correction in equities is likely to continue. The S&P 500 is again 10% below its high, re-entering correction territory on Tuesday, while the Nasdaq 100 is down more than 15% from its record high.
Stifel’s Barry Bannister thinks the S&P 500 should bottom near 4,200 by the end of the first quarter. A drop to these levels represents an additional 5% decline from Monday’s close. The S&P 500 fell about 2% to 4,327 in Tuesday morning trading.
According to Bannister, these are the five things that need to happen before the stock market can bottom out.
1. “The Fed should become more dovish.”
“Such a dovish turn would likely reduce the real yield on 10-year TIPS (Treasury Inflation Protected Securities), which has pressured growth stock P/E ratios much more than value. Lower inflation with a sticky 10-year Treasury nominal yield is our expectation for the peak in the 10-year TIPS yield, which we believe has not happened.”
2. “The US manufacturing PMI is expected to bottom out.”
“We doubt [this] occurs before the end of 1Q22, with the weak March 2022 headline print for the PMI Mfg. possibly occurring on April 1, 2022. 500 price, EPS and US industrial production.”
3. “Global M2 money supply growth set to bottom out.”
“[This] is unlikely to happen until the Chinese currency weakens. We think the next “shoe to lose” is the fall of the Chinese currency from a strong 6.33 to $1 to around 6.75 to $1. China accounts for 37% of global dollar money supply and a weaker Chinese yuan would drive the dollar higher and lower global dollar money supply growth, tightening US financial conditions and lowering the P/E ratio for the S&P 500.”
4. “Quarterly EPS ‘beats’ minus S&P 500 ‘failures’ will have to bottom out.”
“When EPS beats less failures are under pressure, in this case falling below the long-term trend, S&P 500 investors must learn to live with diminished political support while also being subject to diminishing variation. year-over-year S&P 500 Price.”
5. “Ukraine will have to be settled in a way that does not diminish the standard of living in the United States.”
“In many ways, it seems that Russian President Putin is ‘playing chess’ while the West is ‘playing checkers’, such as NATO moving troops to Eastern Europe while leaving exposed Ukraine has the non-dollar reserves, power over EU energy flows, popular support in Russia and the firepower to achieve their goal of a USSR-style buffer zone separating them from the West.”