S&P 500 could drop 20% in coming months as recession hits, BofA warns

The stock market There could be another tumultuous year ahead in 2023, according to Bank of America strategists, with the S&P 500 experiencing a sharp correction should the US slip into a recession.

In an analyst note on Monday, strategists warned the benchmark index could fall as low as 3,240 points, or about 20%, from current levels if the US slips into a recession in the coming months. next.

“History suggests that if US economy experienced a recession, SPX bottomed out during the recession but not before,” the note said. “Only the recession from March 1945 to October 1945 saw a SPX’s recovery before and during the recession.”

The S&P has plummeted about 16% this year as investors worry about persistently high inflation, higher interest rates and the possibility of a recession next year. However, Bank of America strategists warned on Monday that the market could continue to decline.

US stock market

Traders work on the floor of the New York Stock Exchange (NYSE) on September 1, 2022 in New York City.

They write: “The mean and median SPX declines associated with the recession were 32.5% and 27.1%, respectively, and lasted for 13.1 and 14.9 months, respectively. “This equates to SPX 3,500 to SPX 3,240 in February-April 2023, matching the SPX peak to the lowest drop associated with the 12-month MA crossover below the 24-month MA on the SPX. “

Despite a slight drop in consumer prices last month – inflation rose 7.7% year-on-year, the slowest pace since January – Wall Street still has a growing consensus that the Fed will trigger a recession when interest rates rose at the fastest rate in decades.


The Federal Reserve in November approved its fourth consecutive 75-basis-point rate hike, raising the federal funds rate to between 3.75% and 4% – close to the cap – and without signs of a pause in interest rate hikes.

While policymakers have indicated a preference for a smaller, 50 basis point rate hike at their meeting next week, they have also signaled a desire for a more restrained top rate. more economic activity.


“Time to moderate the pace of rate hikes could come as soon as the December meeting,” Fed Chairman Jerome Powell said in a speech in Washington last week. “Given our progress in tightening policy, the timing of that adjustment is much less important than the question of how much further we will need to raise rates to keep inflation under control and the length of time it will take.” to keep the policy in check.”


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