S&P 500 is less than 100 points away from the June lows. On September 22, it closed at 3,757.99, 0.84 percent lower than the previous day’s close. The markets had reversed from the June lows when on June 16, 2022, the S&P 500 closed at its lowest point of 3666.77. And, a further downside is expected amidst the rising yield environment impacting the valuation of equities.
S&P 500 index has shed almost 21% in 2022 so far. From the lowest levels of around 2300, last seen in March 2020, the index had doubled to 4600 in December 2021 before falling to 3700 levels. A nearly 20 percent decline from the all-time highs is what makes S&P 500 find itself in bear market territory.
But, the S&P 500 bottom may still not be near, if some analysts, economists, and market strategists are to be believed. The S&P 500 is made up entirely of large-cap US stocks, which adequately reflect all facets of the US economy with Information Technology, Health Care, and Communication Services being the top three sectors in the index.
According to Berenberg strategists including Jonathan Stubbs, after breaching a rare technical indicator, the S&P 500 may be headed further down. In the previous 30 years, only during the tech boom and the global financial crisis, did the index trade below its 200-day moving average for longer than 100 sessions. According to them, after the gauge crossed that threshold in both cases, it suffered the majority of its losses, dropping another 50% in 2000–2003 and 40% in 2008–2009 before hitting its lowest point.
This means the maximum drawdown may still be away for the S&P 500 index. There is a gloomy scene all around with many others talking about more downside for the S&P 500 index. Goldman Sachs Group has reduced its S&P 500 year-end forecast from 4,300 to 3,600, claiming that the values of US equities will suffer due to a sharp change in the view for interest rates moving upward.
US Fed has already increased rates by 300 basis points in 225 and more such hikes are expected over the next few months. Julian Emanuel, chief equities and quantitative strategist at Evercore reduced his S&P 500 year-end forecast from 4,200 to 3,975 and anticipates a complete retest of the June low in the coming weeks. Following Fed Chair Jerome Powell’s warning that the rate-hike process won’t be ‘painless’ for the labour and housing markets, the target cut takes into consideration a greater likelihood of a recession.
But, not all may be skeptical about market conditions. Tom O’Halloran, a partner and portfolio manager at Lord Abbett, believes the market may have already reached a bottom. According to him, the technical picture reveals more stocks that are bottoming out, and the worst of the Fed’s actions might be behind us.
(With inputs from agencies)