So far this year, the S&P 500 has dropped by 13%, and many experts are turning their attention to stocks.
The Bank of America strategists led by Savita Subramanian describe some of the unanticipated negative factors that have emerged this year.
What''s changed since January 1st? they ask rhetorically in a statement. The Russia/Ukraine conflict exacerbated commodity price inflation and also impacted Europe''s GDP.
The analysts said that central banks, particularly the Federal Reserve, have become more hawkish.
China''s growth is falling, and other cyclical indicators have been implemented. This is a case of the S&P 500 [earnings] facing steep margin pressure (deglobalization), with little to no valuations, and a Fed taper still in play.
33% Recession Probability
Note that the average peak-to-trough decrease in the S&P 500 amid recessions has been about 32%. So, the S&P''s 10% year-to-date decline may be interpreted quite as reducing a one-third probability of a recession.
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The stock market for the S&P 500 has been reduced to 4,500 from 4,600 previous years, despite a new figure achieving a 8% increase from the previous level of 4156.
Despite inflation and a significant increase in expenditure on services, analysts argue that better-than-expected consumption (especially in the lower-income cohort).
After the $20 trillion cash handoff from the Federal Reserve and the government, consumers/corporate balance sheet are seeing a healthy growth.
In the face of the recession, the strategists prefer consumer goods. They also favor energy stocks, with travel and leisure spending assisting oil, and healthcare.
According to a separate BofA report from strategists led by Michael Hartnett, a reduction from the S&P 500 might be a tipping point leading to disappointment and a massive exit by investors.
Role of the Fed
TS Lombard, the company''s chief economist, said the Fed is attempting to push stock prices down.
In a commentary, the Feds communicated that policy shift was intended to decrease equities. Equities and the dollar are the main sources of economic growth and, therefore, inflation.
The Federal Reserve has called for a tightening of financial conditions, which include in turn stocks and the dollar.