Bloomberg News reports that a growing number of strategists on Wall Street see the stock rebound of last week as a head fake before more selling, as risks associated with the growth in corporate earnings and the US economy continue to remain with high inflation stubbornly.
The S&P 500 Index on Tuesday was drifting lower after snapping the weekly drops in two decades of the longest streak. Analysts belonging to investment firms and banks, and even Morgan Stanley, Oppenheimer & Co., and America Corp anticipate more losses.
The bounce of late was driven by oversold conditions tied to the hopes that there might be a debate for a pause in September by the Federal Reserve, as stated by Michael Wilson of Morgan Stanley, who is one of the most vocal bears. He believes that earnings estimates remain very high and sees the S&P 500 trade closer to 3,400 by the second-quarter earnings season in mid-August, indicating an 18% downside from the close on Friday.
Room to fall
Jonathan Krinsky, who is the chief market technician at the BTIG, also believes that S&P 500 will drop to 3,400 to 3,500, but also stated in a note to the clients that it is perhaps an event of early fall or late summer, and before that the equities benchmark will rebound between 3,800 and 4,250.
Sam Stovall, chief investment strategist, associated with CFRA Research, cited how S&P500 was due for the rally as the price-to-earnings ratio based on estimates of forwarding 12-month reached 16.8, which is the lowest reading since early 2020 April and 1.1% below an average of two decades.
Stovall, in his note, revealed to the clients that the market was primed for at least a snapback in the short term. The S&P 500 is expected to get closer to the bottom than at the top, as per Ari Wald, the head of technical analysis at Oppenheimer, as several of the company’s market bottom indicators are near the targeted thresholds. For instance, the S&P500 tallied a peak-to-trough drop of 21% during the intraday trade on May 20th.
The weak market breadth still may herald further drop for US stocks in the future as fewer stocks move the major indexes higher, as reported by Bloomberg News.
