Top Line

As stocks struggle to add to a surprise year-end rally, a group of analysts is warning the bear market that began in June is likely to last in coming quarters as corporate earnings rise. That threatens to reveal the damage of the Federal Reserve’s interest rate hikes. This year – setting the market to a potential new low and at least a one-year low of profit.

Key Facts

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The “bear market is not over,” Peter Oppenheimer, chief global equity strategist at Goldman Sachs, told clients in a Monday note, adding that a “sustained recovery” won’t begin until the peak of interest rates, which Goldman economists don’t expect until next year. .

As a result, Oppenheimer expects “greater volatility”, with the S&P 500 making a “final” low next year, but ending the year roughly flat at the 4,000 mark because stocks are “highly sensitive to new information”. is what changes” [investor]

Assumptions” about the economy.

The analyst says the current bear market is primarily driven by the economic cycle and rising interest rates, which means it is cyclical – a type of recession that has historically lasted an average of 26 months and has been followed by “many sharp rallies”. It took 50 months to recover with. ,

Others agree: “This is not the start of a new bull market,” Morgan Stanley’s Lisa Shallett wrote in a Monday note, calling the S&P’s nearly 10% jump this month “yet another bear market rally.” linked to inflation data, before adding: “We recommend caution.”

Chalet acknowledges positive factors fueling rally including bullish momentum Rate Highest level since December and mid-term elections secured fit the market “Legislative Impasse.” But she warns that economic concerns will intensify next year as the effects of rising rates become apparent.

The “most concerning” issue facing markets is “unrealistic earnings expectations” for next year — although companies have since to reduce His forecast for slower economic growth – and the cuts Morgan Stanley projects will only continue, pushing the S&P down to 3,900 points at the end of next year, down 1% from the current level of 3,950.

important quotes

"Don't confuse the beginning of the end of a bear market with the end," says Shalett. "Investing in view of the economic slowdown and fall in earnings can prove to be dangerous."

main background

Last month's inflation data, which showed consumer prices rising 7.7% (compared to a peak of 9.1% in June), was a promising sign for consumers as Fed officials speculated on when to hit the brakes on their aggressive tightening campaign. to be hit, and the stock rose as a result. , However, despite a month of respite, many economists cautioned against being overly optimistic that inflation has subsided. "If this constitutes reform, we've set the bar very low," says Bankrate chief financial analyst Greg McBride, adding that the "prevalence" of inflation "remains problematic," especially in terms of housing, food and in energy prices. "The S&P is up 10% from October's low but is still down about 18% this year.

what to watch

On Wednesday, the Fed is set to release a summary of officials' discussions at its policy meeting earlier this month. Sevens Report analyst Tom Esse says minutes of the meeting will indicate rate hikes will slow next month, but that the smaller increase is "not positive for markets" as economists expect a massive recession Which is considering the intensity of the past. Growth. Instead, Essaye points to the Fed's following announcement on December 14 as the "next major" market catalyst. Goldman forecasts a half-point increase next month, followed by three-quarter points next year. Next month's announcement will shed light on what the Fed anticipates.

Recession watch: Biggest stock market rally in years seems 'overdone' as Fed hasn't beat inflation yet (Forbes)

Fed hikes interest rates another 75 basis points—pushing borrowing costs to highest level since Great Depression (Forbes)