Stocks imploded in April, what’s ahead for May?
Equity investors long the market got roughed up in April amid steep swings and losses not seen in decades.
The S&P 500 and the Dow Jones Industrial Average posted the worst April since 1970 down 8.8% and 4.9%, respectively. The Nasdaq Composite’s 13.2% drop was the most since April of 2000, as tracked by Dow Jones Market Data Group.
« It was a disaster » James Bianco, President Bianco Research LLC told FOX Business. « The markets are starting to come to the realization that the Fed is going to be very aggressive » he added. Bianco predicts policymakers will hike rates 50 basis points at every meeting this year, including this week’s on Wednesday, with the possibility of even a larger hike at one of two of those meetings later this year.
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Investors may be in for more downside volatility in May unless inflation begins to abate. « What ends this cycle is inflation, moderate inflation and that gets the Fed to back off » Bianco added.
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The consumer price index, which tracks multiple items including food, gas, rents, and health care, jumped 8.5% in March from the year-ago period, the fastest pace since December 1981, when inflation hit 8.9%. The producer price index is even higher, rising 11.2%. The diesel fuel component pink 20.4% driving the bulk of the increase. Fresh updates are due mid-May.
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Last week the US economy surprisingly contracted 1.4% during the first quarter raising fresh concerns about a recession.
In a recent research note titled « Recalibrating our views » Bank of America’s Savita Subramanian, Equity & Quant Strategist described what’s changed so far this year. « War, GDP cuts, Fed on steroids… » she detailed. As a result, she trimmed her year-end target for the S&P 500 to 4,500 which still implies a yearly advance of 8.9% from Friday’s closing price.
With the major averages down sharply this year, especially the Nasdaq, LPL Financial chief market strategist Ryan Detrick, is taking a contrarian view.
« Everybody’s bearish right now, we get it, two years ago everyone was bearish too and look what happened. We’re not saying we are going to have that type of a rally probably but there is a lot of negativity and the economy is still strong, earnings drive things and earnings are still pretty solid here and we are going to side with this an opportunity » he explained to FOX Business.