Stocks to Fall By End of Year on Recession
According to Bank of America, strategists, the delayed arrival of a US recession will likely weigh on stocks in the second half of 2023, after a period of strong economic growth in the first half of the year. The strategists predict a scenario known as “no landing,” where central banks will likely remain hawkish for longer and interest rates will stay higher for a longer period of time due to a resilient economy thus far. This will be followed by a “hard landing” in the latter part of 2023.
The team, led by Michael Hartnett, expects the S&P 500 to decline to 3,800 points by March 8, a decline of over 7% from Thursday’s close, after failing to break through a ceiling of 4,200 points. Recent economic indicators show that the Fed’s mission to bring down inflation is “very much unaccomplished.” Hartnett’s more cautious outlook is shared by several strategists, including Morgan Stanley’s Michael Wilson, who expects US stocks to bottom in the spring after prematurely pricing in a pause in Fed hikes.
Barclays Plc strategists also agree that the equity rally is being kept in check by sticky inflation, but technical and sentiment indicators have normalized and are less supportive, although they don’t give clear sell signals. In contrast, Wells Fargo & Co. strategists led by Christopher Harvey see a 3% to 5% pullback in US stocks in the near term as an opportunity for investors to buy the dip, as they believe a hard landing is unlikely due to the economy’s resilience.
Investors have been shunning US equities, with outflows totaling $2.2 billion in the week through Feb. 15, according to EPFR Global data cited by Hartnett, while Europe saw inflows of $1.5 billion, and emerging-market stocks attracted $100 million. Bonds had inflows of $5.5 billion, with Treasuries seeing their best start to a year since 2004, and Bank of America’s private clients poured the third-biggest amount on record into bonds.