Will the stock market fall 20% or 48% from the peak? Here is the key factor, says this strategist.

“Is the economy under control or is it getting out of control? That is the million dollar question that traders continue to argue about,” summarizes CrackedMarket blogger Jani Ziedins.

Clearly the latter argument prevailed, again, after Wall Street’s worst day in two years, and futures hinted at more pain on Thursday. Among the gloomy, Guggenheim’s Scott Minerd warned of a possible “summer of pain”: a 45% drop from the top for the S&P 500 and a 75% drop for the Nasdaq.

Read: Markets Haven’t Acted Like This Since 1981, And Here’s How It Played Out

To be sure, Wall Street has been ramping up downside stock forecasts in recent months. On the optimistic side, JPMorgan’s ever-stoic chief equity strategist Marko Kolanovic told Bloomberg (in an interview before Wednesday) that stocks “will climb out of this hole” as recession and stagflation fears are overblown. .

In fact, our call of the day of Evercore strategists say markets are spiraling into the idea that recession is a foregone conclusion. They also say that the panicked, leveraged retail investors who have been behind this sell-off should calm down soon as the pros aren’t scared (yet).

“On Thursday, we will get an idea of ​​whether the market action is part of a volatile bottoming process, our base case, or whether the drop could materially undermine SPX 3854, triggering a capitulation trade,” notes the Evercore team. , directed by Julian Emanuel. .

Offering their take on what has been happening with this sell-off, Emanuel and team argue that markets have been caught in the “wrong direction” by the Fed, rallying despite aggressive comments from Chairman Jerome Powell, and then dumping it back. a whole day later, echoing what happened next. the Fed meeting in early May.

What is key here is not whether markets understand the Fed’s intent, but “whether a recession in 2022-23 is avoidable to combat generationally high inflation, with the only prior experience of the Fed Volcker tightening (1971-81) to the point where multiple recessions were an inevitability.”

Emanuel and team don’t think the Fed should precipitate a recession, but say stocks are behaving the way they are.

“The distinction is critical. The last three non-recession bear markets were down -21.3% on average: 2018 a ‘V’ bottom, 2011 and 1998 a ‘W’, though neither recorded as an ‘official’ bear. The last three recessionary bear markets (2020, 2007-09, 2000-02) are down -47.9% on average,” says Evercore.

Panicked investors, especially on the retail side (they’ve been blamed before), should calm down soon, he says.

Read: A higher proportion of younger investors say they’re not afraid to buy the dip for long-term gains, but there’s one big caveat

“We continue to hope that the public (whose job prospects remain strong and
healthy balance sheets) liquidating its Margin Debt to give in to contrary signals/Depressed Sentiment Error and defensive career positioning, stabilizing stocks in the coming days,” say the strategists.

The buzz

Cisco Systems CSCO
is on track to open at its weakest since late 2020 as China’s COVID-19 lockdowns hurt its outlook.

After Walmart WMT
and target TGT
pessimistic results this week, Kohl’s KSS
is down on weak earnings and cut forecasts, a day after two executives left. Bed bath and beyond BBBY
stocks were also down on weak guidance on Wednesday night.

Read: The worst performing stocks on Wednesday are mainly coming from this sector which has investors really worried.

Once a blue-chip hedge fund, Melvin Capital, is closing its doors.

The latest weekly jobless claims report showed an increase of 21,000, while the Philadelphia Fed’s manufacturing report fell sharply to 2.6 in May from 17.6 in the previous month. Existing home sales and leading indicators are yet to come.

A case of monkeypox has been identified in Massachusetts, and officials are investigating links to the rare disease from a series of outbreaks in Europe.

The markets

DJIA Stocks

SPX

COMP.
head south, along with bond yields BX:TMUBMUSD10Y

BX:TMUBMUSD02Y.
CL00 oil,
the dollar DXY
and the entire crypto space BTCUSD
are weaker Gold GC00
has risen almost 1%.

the tickers

These were the most searched tickers on MarketWatch at 6 a.m. ET:

Heart

security name

TSLA

Tesla

GME

gamestop

AMC

AMC Entertainment

AAPL

Apple

LITTLE BOY

LITTLE BOY

AMZN

Amazon

TWTR

Twitter

Kohl’s

BIG

vinco companies

amd

advanced micro devices

The graphic

Michael Kramer, founder of Mott Capital Markets, is on the lookout for a big name for Thursday: Apple AAPL.
– and advises investors to do the same.

“If this stock breaks support at $139, it will probably shut down the entire stock market. That would create a lower low for Apple, a support breach and set up a drop to around $123. I don’t see how the entire market doesn’t follow Apple lower at that point,” Kramer said.

Capital Mott

random reads

COVID-19 relief money from a rural Japanese town was mistakenly sent to a guy who bet it all.

Former President George W. Bush made a pretty big Freudian slip.

Need to Know starts early and updates until the opening bell, but sign up here to have it delivered once to your inbox. The emailed version will be sent at approximately 7:30 am ET.

Do you want more for the day ahead? Sign up for The Barron’s Daily, a morning briefing for investors, featuring exclusive commentary from Barron’s and MarketWatch writers.

Add Comment