Investors are widely anticipating that the Federal Reserve will announce a new round of interest rate cuts today, but several prominent market strategists nonetheless see a big stock market selloff in the near future. Peter Cecchini of Cantor Fitzgerald expects the S&P 500 Index to be at 2,500 by early 2020, a plunge of about 18% by early next year, Business Insider reports. He sees bearish manufacturing and consumer data, making a recession likely by the second half of 2020.
While Cecchini sees a recession brewing in the manufacturing sector, he is not heartened, as are many other analysts, by consumer spending data and consumer confidence surveys that remain strong. He says that consumers typically keep spending until the onset of an economic downturn. “There’s really not much room for improvement” in key indicators such as unemployment or consumer spending,” he added.
Albert Edwards of Societe Generale notes that stock prices have been advancing faster than earnings, and he finds this to be reminiscent of the dotcom bubble. Meanwhile, interest rate cuts by the Fed appear to be losing their potency, The Wall Street Journal reports. Among the reasons for this loss of potency are that investment in residential housing, a major beneficiary of cuts, has declined as a share of U.S. GDP. In addition, widespread uncertainties about global growth and trade tensions are making corporations hesitant to invest, even if they can borrow at lower rates.
Leading investment managers are also becoming increasingly bearish, per the latest release of the Big Money Poll conducted by Barron’s. Among respondents, 31% are bearish on stocks, the highest level since the mid-1990s, while only 27% are bullish, less than half the proportion one year ago. Individual investors also polled by Barron’s are similarly gloomy, with only 29% calling themselves bullish, and 42% believing that U.S. stocks are overvalued.
Meanwhile, corporate CEOs are registering their lowest levels of confidence since the 2008 financial crisis, and a majority of corporate CFOs expect the U.S. economy to be in recession by the second half of 2020, per two other recent surveys.
John Hussman, an investment manager and former professor, is another prominent bear. “Look, I expect the S&P 500 to lose somewhere between 50-65% over the completion of the current market cycle,” he told BI in another report.
Trader Georgi Bozhidarov