A trader at the New York Stock Exchange in late December.
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The stock market opened lower Tuesday, following a nail-biting trading day and weeks of continuous drops.
Analysts believe there is still a long way to go before the markets start climbing higher.
The Dow Jones Industrial Average dropped 450 points when markets opened on Tuesday to 33,912. The S&P 500 was down 1.5%, and the Nasdaq Composite fell 1.7%. The S&P 500 and Nasdaq finished Monday 0.3% and 0.6% higher, respectively.
Stifel analyst Barry Bannister sees the S&P falling around 600 points to 4,200 within the first quarter of 2022, down from 4,800 where it stood at the end of 2021.
The fall would represent a 12.5% loss in the near term, driven by tightening U.S. monetary policy as the Federal Reserve cuts back on its economic stimulus and begins tightening in a bid to tackles inflation, he added. Over the past few weeks, rising bond yields have “severely” affected growth stocks, he said.
“EPS bounced back in 2021 more quickly (in one year) after the 2020 recession than the three years required to rise above-trend after the 2000 and 2009 recessions, the result of fiscal support which over-replaced (with federal debt) income lost due to COVID, but we contend that “rescue” has left actual EPS far above trend and set to slow,” Bannister wrote in a January research note.
The analyst recommends that investors overweight defensive groups and underweight cyclicals. Defensive industries include biotech, pharmaceuticals, food and staples retailing, utilities, telecommunication services, and transportation. He classified cyclical industries as banks, media and entertainment, consumer durables and apparel, software and services, energy, semiconductors, tech hardware, and automobiles, among others.
Write to Sabrina Escobar at [email protected]
