Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Wall Street strategists sound gloomy note as stocks drop again

Economy Apr 25, 2022 03:51PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016. REUTERS/Jason Lee 2/2

By Lewis Krauskopf and Saikat Chatterjee

NEW YORK/LONDON (Reuters) -After a rocky week for U.S. stocks, a number of Wall Street strategists are pointing to reasons for further caution as investors face tightening monetary policy, corporate earnings, seasonal weakness and other factors that could spell more trouble for equities.

The S&P 500 was last down about 1% on Monday after posting its third straight weekly drop and has lost some 11% on a year-to-date basis. With the benchmark index approaching its closing low of 2022, several strategists have warned of more declines to come.

"A perfect storm of fears about inflation, the prospect of higher rates and a lockdown in Shanghai are weighing on sentiment," David Madden, market analyst at Equiti Capital, wrote in a note to investors.

Among those sounding caution was Morgan Stanley’s Michael Wilson, who in a report on Monday pointed to rising valuations for defensive stocks and slowing margin expansion as fresh warning signs for investors.

"With defensives the latest big outperformer, they are now expensive, leaving very few places to hide," Wilson and other Morgan Stanley (NYSE:MS) analysts wrote. "This suggests the S&P 500 will finally catch up to the average stock and enter a bear market."

"In our opinion, the accelerative price action on Thursday and Friday may also support the view we are now moving to this much broader sell-off phase," they wrote.

Meanwhile, Citi’s Matt King noted that reserves at the Federal Reserve fell by $460 billion last week, the single biggest weekly drop on record.

In a note titled "Sudden stealth QT = weaker markets", King estimates that a $100 billion drop in reserves translates to a 1% drop in stocks, referring to quantitative tightening, or the policy of central banks draining surplus cash from the markets, by its popular acronym.

Investors face a deluge of corporate earnings this week, including results from heavyweights such as Amazon.com (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Google parent Alphabet (NASDAQ:GOOGL), as well as continued geopolitical uncertainty stemming from the war in Ukraine and COVID-19 lockdowns in China.

Meanwhile, most investors expect the Fed to announce a half-percentage-point interest rate increase at the end of its policy meeting next week, though many worry that markets have not priced in the full scope of the U.S. central bank’s potential hawkishness, as policymakers battle the worst inflation in about 40 years.

"Markets have still not yet fully discounted the most likely future path" of Fed policy, Nicholas Colas, co-founder of DataTrek Research, said in a note on Monday.

"We continue to believe that US/global equities will not bottom until markets stop discounting ever more aggressive Fed rate policy," Colas wrote.

POSSIBLE REBOUND

World stocks recorded their worst quarter this year since the coronavirus pandemic unleashed havoc in March 2020.

To be sure, some see reasons for a bounce-back following the recent slide. JPMorgan (NYSE:JPM) strategists on Monday said they see "risks skewed toward a near-term equity rally," citing factors such as oversold conditions and systematic strategy buying.

At the same time, investors may have one more factor to worry about: seasonality.

The S&P 500's strongest six months of the year since 1946 have been November through April, when the index has risen an average of 6.8%, Sam Stovall, chief investment strategist at CFRA, said in a note on Monday. By comparison, the index has gained only 1.7% on average from May-October.

Wall Street strategists sound gloomy note as stocks drop again
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
jason xx
jason xx Apr 25, 2022 2:09PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Bullish
Andy Lowery
Andy Lowery Apr 25, 2022 11:28AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Hoho
jason xx
jason xx Apr 25, 2022 9:13AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
nah sideliners will come back in. Massive money on sidelines they aren't going back to savings accounts.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email