Growling Powell causes Goldman to cut its S&P 500 price target. Again.

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During the height of the bull market — which, boy, seems like a long time ago — the call-option junkie punters who lived in the WallStreetBets channel had a favorite meme to explain why the stock would stay higher.

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“Money Printers Go Brar” featured Rambo-esque Jay Powell, Federal Reserve Chairman, Definitely firing the greenback Whoever can pick them up.

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Well, now “Jay Powell go Gr” would be more appropriate. Traders-friendly monetary caution has turned into a rising interest-rate-hiking bear.

And investors are not happy. Nasdaq Composite Comp,
Rich with such stocks — Apple, Tesla, Nvidia — formerly beloved by short-term option buyers, is down 29.3% this year, and is again flirting with summer lows. The latest AAII sentiment survey shows individual traders at their most pessimistic since 2009.

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Now Goldman Sachs is citing Powell’s projected rate hike to short its S&P 500 SPX.

Year-end target of 4,300 to 3,600.

“The expected path of interest rates is now higher than previously thought, which tilts the distribution of equity market results below our prior forecast,” David Kostin, chief US equity strategist at Goldman, wrote in a note.

When Goldman lowered its year-end S&P 500 price target from 4,700 to 4,300 in May (it started the year with 5,100) the market was predicting the Fed would stop its hiking cycle around 3.25%. Will give Traders now believe the so-called terminal rate will be 4.6%, and economists at Goldman see a possible maximum of 4.75% for the Fed funds rate by next spring.

That’s sharply pushing up real 10-year Treasury yields, and Goldman notes that they have risen from minus 1.1% at the beginning of the year to 1.3%, the highest since 2011. The bank estimates that they can reach 1.25% by the end of 2022. before peaking at 1.5%. This is not good for stocks.

Source: Goldman Sachs

“The relationship between equities and rates is dynamic,” Kostin says. “The drivers of changes in real returns determine the impact on equity valuations. The increasing weight of high-growth technology companies in the index has also increased its duration and rate sensitivity.

The forward price/earnings multiple of the S&P 500, which was 21 at the beginning of the year when real interest rates were negative, has now fallen to 16.

“However, over the past few weeks, the relationship has cracked; equity valuations have fallen from their recent peak but are still trading above the level implied by the recent correlation with real rates. Recent with real returns “Based on the relationship of the S&P 500, the S&P 500 index should trade at a multiple of 14x instead of the current multiplier of 16x,” Kostin says.

Hence their price target was cut. The good news is that 3,600 is down only 4.1% from Thursday’s close. And Kostin believes a year-end rally to 4,300 is “possible if inflation shows clear signs of easing”.

Source: Goldman Sachs

The bad news is that Goldman thinks the risks are skewed to the downside. Stubborn inflation, and thus relentlessly aggressive Fed, can lead to recession. Goldman economists place a 35% chance of this happening in the next 12 months.

“In a recession, we anticipate earnings will decline and the yield gap widens, pushing the index to a trough of 3150,” says Kostin.


Wall Street S&P 500 futures contract ES00 . is facing another decline with

1% to 3735. 10-Year Treasury Yield BX:TMUBMUSD10Y

It rose 5.4 basis points to 3.769%. Fears of a global recession pushed WTI oil futures CL . pushed to

fell 2.1% to $81.70 a barrel.


Dollar Index DXY

Euro goes above 112 for first time in 20 years as European economy and Italian election anger push EUR/USD

below $0.98.

Economic data due Friday includes the S&P Flash US Manufacturing and Services PMI report, both released at 9:45 p.m. Eastern. The US central bank is hosting its “Fed License” event, starting at 2 p.m. Eastern, with opening remarks from Chairman Jay Powell.

The initial seasonal Grinch prize goes to Dirk Willer at Citigroup, who predicted that investors shouldn’t expect a Santa rally this year.

Britain’s new Chancellor of the Exchequer Quasi Quarteng presented a mini budget on Thursday. Enriched by trickle-down theory, it promised income and wealth tax cuts and put the cost of six months of energy aid at £60 billion ($67 billion). UK’s alleged fiscal incontinence sees gilt returns BX:TMBMKGB-10Y

Sterling bounces back to 12-year high and yet GBPUSD

reached a low of 37 years.

Shares in Credit Suisse CH:CSGN

Falling over 8% to a fresh multi-year low on a reported basis, the troubled bank may have to raise more capital as it seeks to restructure.

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The closing bells of more than half of the sessions over the past 12 months “have been accompanied by sad trombones,” Benedek Voros, director of index investing strategy at the S&P Dow Jones Indices, says in a note published Thursday morning. In such a situation, investing in stocks with low volatility was a better bet.

“For astute followers of the factors, the S&P 500 low volatility has been somewhat of a beacon of hope. By capturing disproportionately more upside than the bottom, low volume has a positive 12-month return of 1.2%, while the S&P 500 There is a loss of 11.6% for Rs.

Source: S&P Dow Jones Index

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