S&P 500 May Revisit June Lows 'Faster Than Many Anticipate' - Strategist

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By Senad Karaahmetovic

U.S. stocks closed sharply lower yesterday after the Fed delivered the third consecutive rate hike by 75 basis points and suggested it follow up with the fourth hike of that size to finally bring inflation down.

The S&P 500 and Dow Jones both closed 1.7% lower, while the NASDAQ Composite Index fell almost 1.8%. Fed’s “dot plot”, as well Chair Powell’s commentary during the press conference, prompted Wall Street strategists to revise their forecasts for rate hikes higher.

Moreover, some analysts are calling for a sharper-than-anticipated drop in the equities as the Fed continues to aggressively tighten its monetary policy.

Jonathan Krinsky, the Chief Market Technician at BTIG, sees the risk of equities falling “faster than many anticipate.”

“We believe the pain trade is lower. Given today's downside reversal and a continued lack of any capitulatory signals, we think the path to the June lows (3,640) might be faster than many anticipate,” he told clients after the FOMC meeting.

Other strategists are call calling for a more defensive positioning within equities as the downside risks increase.

“At a sector level, we reiterate our most preferred views on consumer staples and healthcare—two sectors that are less correlated with economic activity. We also like the energy sector,” UBS strategist Solita Marcelli told clients in a note.

Adam Crisafulli of Vital Knowledge sees “too much monetary tightening for stocks to bear.” As a result, the S&P 500 simply “won’t be able to rally with the Funds Rate cycle ceiling at 4.5% or higher.”

Crisafulli also weighed in on the estimate cuts that could prompt the next leg lower for stocks.

“A few months ago, the best-case scenario was ~$240 and 18x (which got the SPX to ~4300) but amid a deteriorating earnings outlook and higher rates, it’s really hard to argue for anything more than ~$230 and 17x (or about ~3900, barely higher than the Wed close),” Crisafulli told clients.

The U.S. equities are trading modestly higher in pre-market Thursday.