Investors would be wise to buckle up for more downside to an already battered stock market, veteran CFRA Chief Investment Strategist Sam Stovall warns.
“I think this will be a bear market with a recession,” Stovall said on Yahoo Finance Live (video above). “Bear markets with recessions have ended up being deeper and lasting longer than those without a recession, with the average decline being 35%. So I think we will probably end up seeing this bear market bottom around 3,200.”
Stovall’s prediction would mark another 14% decline in the S&P 500 from current levels. And if hit, that would represent an approximate 33% drop from the Jan. 3, 2022 record high — roughly in line with the long-term averages seen during a recession called out by Stovall.
To be sure, the action in the markets are supportive of Stovall’s bearish analysis.
With rising fears over the path of interest rates, volatile foreign exchange moves and slowing growing economic growth, the Dow Jones Industrial Average, Nasdaq Composite and S&P 500 are all down by double-digit percentages year to date. The Nasdaq is down the most with a 30% drop.
Household name tech companies are seeing some of the most stunning declines as investors dial back expectations for future growth and factor in higher interest rates.
Apple is off by 15% so far on the year, Microsoft has shed 29%, and Amazon has lost 30%. Meta and Netflix are down a whopping 59% and 62%, respectively, so far in 2022.
“[There are signs of panic as investors sell stocks en masse, buy puts, and are generally miserable,” strategists at Sundial Capital Research wrote in a note to clients. “As the selling accelerated to end last week, more than 90% of big tech stocks in the Nasdaq 100 fell back into a correction, down more than 10% from their peak.”
The upside amidst the turbulent climate? Once the economy stabilizes and investors sniff out peak interest rates, Stovall believes we could see a “rip your face off” rally.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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