The Stock Market Carnage Likely Isn’t Over, Say These 5 Experts

Stocks have kicked off 2022 by falling into a bear market with the S&P 500 down more than 20%. 

Some speculate that a bottom could be in soon with investors having priced in the aggressive tightening campaign from the

Federal Reserve

that triggered the crash. Stifel’s Chief US Equity Strategist Barry Bannister, for example, said last week that he sees a 10% rally for the market over the next few months, with oil prices likely to come down and the Fed likely to stop hiking rates by the end of the year. 

But for others, there is still more carnage ahead as the threat of a

recession

looms. In recent weeks, a number of Wall Street strategists and market experts have put out projections for further downside — or evidence showing the risk of further downside — in the S&P 500. Below, we’ve detailed five of their views. 

Goldman Sachs

In a June 27 note to clients, a team of strategists at Goldman Sachs lead by Ben Snider said that investors aren’t pricing in enough risk for profit margins and earnings downside given how much the Fed is tightening. 

“While investors are focused on the possibility of recession, the equity market does not appear to be fully reflecting the downside risks to earnings. The S&P 500 decline this year has been driven entirely by falling valuations, which in turn have moved in line with rising interest rates,” Snider said. 

“As a result, the equity risk premium remains close to where it started the year,” he continued. “While rotations within the equity market have signaled expectations of slowing growth, index valuation does not appear to be providing a buffer for the uncertainty around the path of future earnings.”

Morgan Stanley

Morgan Stanley’s Mike Wilson said in multiple notes to clients this month that the S&P 500 faces as much as another 15-20% downside, which would put the S&P 500 at around 3,000.

He said investors are not pricing in a recession, and until it becomes clear whether the US avoids one or not, stocks would continue to sell off. 

“We continue to believe any near term rally is nothing more than a

bear market

bounce with lower lows ahead,” Wilson said in a June 27 note. “The only question is whether we have a soft landing (base case) in which the S&P 500 bottoms near 3400-3500 or we have a recession (bear case) in which the index falls toward 3000.”

Bank of America

Bank of America’s Savita Subramanian said last week that she sees a low of around 3,000 for the S&P 500 if a recession unfolds. 

She also pointed out that the average bear market through history has been a drawdown of 35%, which would put the index at 3,100.

Subramanian also said that 14 of her firm’s top 20 valuation measures are still historically extended.

Societe Generale

Societe Generale’s Solomon Tadesse and his team also looked at history for context on the current bear market. 

They found that the S&P 500’s extraordinary recovery from its March 2020 lows have put returns significantly above norms for the 27-month period following a bottom. That means further declines to revert to more normal return levels are likely in store, he said. 

“Our analysis shows that, to be consistent with the historical post-crisis market valuation trendline, the cumulative returns as of today, since the March 2020 bottom, should be about 35%, that is an S&P 500 level of 3020, which implies a total drawdown from the January 2022 top of about 37%, indicating a further sell-off of about 15% to reach a new market bottom,” he said in a June 23 note. 

Sanders Morris Harris

On Wednesday, Sander Morris Harris Chairman George Ball said he sees the S&P 500 falling to 3,100 as the Fed hurts earnings by raising rates. 

Ball said he believes the Fed will raise the fed funds rate by at least 50 basis points at each of the remaining four meetings this year. 

“We do not believe the stock market has bottomed yet and we see further downside ahead. Investors should be holding elevated levels of cash right now,” he said. “We see the S&P 500 bottoming at around 3,100, as the Federal Reserve’s aggressive, but necessary inflation-fighting measures are likely to depress corporate earnings and push stocks lower.”