Stocks may be headed for a major skid
Stocks started slipping recently as investors grasped that the Fed likely won't soon reverse interest-rate hikes.
Stocks started slipping on
After Fed Chairman
Powell said rising rates will probably cause pain for the economy. "This was not the Powell we normally see, where he tries to be more balanced,"
"I don't see how you could take what he said any other way."
The economy already is slowing, with GDP shrinking 0.6% in the second quarter after a 1.6% slide in the first quarter.
An economic slowdown means lower corporate earnings. And if Fed rate hikes push the economy into a recession, earnings could stumble big time.
Earnings Numbers
The blended earnings growth rate for the S&P 500 was 6.7% for the second quarter as of
That is the lowest increase since the fourth quarter of 2020, when the covid pandemic was raging. And if you take out the soaring energy sector, earnings decreased 3.7% in the second quarter.
"The path for stocks from here will be determined by earnings, where we still see material downside," Morgan Stanley strategists wrote in a commentary cited by Bloomberg. "As a result, equity investors should be laser focused on this risk, not the Fed."
Meanwhile, the S&P 500's forward price-earnings multiple trailed its five-year average, but exceeded its 10-year average as of
Bearish Wagers
In other negative trends for stocks, many investors are betting against them, with net short positions reaching two-year highs. Short positions are bets that stock prices will drop.
And
"There's so much skepticism, so we're still in the sell-the-rally mentality,"
Seasonal factors don't bode well for stocks either. August and September are historically the worst months of the year for the S&P 500. The index has averaged dips of 0.6% and 0.7% for those months, respectively, over the past 25 years, according to Bloomberg.
Put it all together and things aren't looking too bright for stocks.
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