The Bank of America has revealed that investors must be prepared as the S&P 500 officially entered bear market territory on Monday, indicating they will experience misery for some time.
The Federal Reserve has been signaling for some time now that they will be raising interest rates. This is likely to cause further volatility in the stock market, with investors expecting an increase of 75 points on Wednesday, higher than the expected 50 points people initially anticipated.
Friday’s hot CPI inflation report exceeded economist estimates and indicated no signs of slowing down.
It seems like the Bank of America was not alone in its sentiment that stocks will stay below current levels until inflation prints a peak.
“Wall Street sentiment is dire but no big low in stocks before big high in yields and inflation,” said the Bank of America. “The latter requires uber-hawkish Fed hikes in June and July.”
Wall Street has echoed ominous sentiments that can be traced to the fact that the global economy is struggling, with growth optimism fading and inflation reaching its highest level in 14 years. This has led to fears that the corporate profit outlook will be worse than 2008–the last time the country saw this kind of economic crisis.
The V-shaped recovery of Bear Markets is an indication that they may be correct in their call for misery.
Susquehanna International Group’s Chris Murphy’s research found that there were 12 major bear markets in the United States since 1945.
“Looking at the other 12 bear markets, we see that on average, after the SPX enter bear market territory, it continues to fall another 14%, taking 103 trading days before reaching a bottom,” said Murphy.
In the event that a similar decline occurs, it is likely to bring down stocks even more. The S&P 500 would fall to 3,250.