Could the S&P 500 headed for a 20% fall?

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May 8, 2019 5:54pm NYSE:SPY

The S&P 500 Index (SPX) has pulled back from near record highs in recent days amid President Trump’s threat to hike tariffs on Chinese goods, but much steeper declines may be ahead, according to several noteworthy market watchers. “We see some eerie similarities between current conditions in the stock market and those that preceded the S&P 500’s peaks in January and September [of 2018] on our sentiment and valuation models,” Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, observed in a note to clients, per Business Insider. Calvasina said she expects a market reversal ahead.

The S&P 500 fell about 10% from top to bottom after reaching its January 2018 peak. The market then badly shook the nerves of investors by plunging nearly 20% on a closing basis after the September peak, a hair short of the official definition of a bear market, before staging a surprising rebound.

Stocks were up slightly at noon on Wednesday, partly recouping the market’s losses from its new all-time high on May 1.

But market watchers say several of factors may push stocks down sharply, including U.S.-China tensions, high valuations, and investor overconfidence that the Fed will maintain its dovish stance.

Vincent Deluard, head of global macro research and strategy at INTL FCStone, shares Calvasina’s bearish view. He warns that stock market “[valuation] multiples are entering the danger zone,” per another report in BI. And Seth Carpenter, the chief U.S. economist at UBS, says investors are too confident that the Federal Reserve will remain dovish. “Discussing even the possibility of a rate hike this year may seem premature, but we can no longer rule it out: A rate hike is a risk. The [Federal Open Market] Committee may turn increasingly hawkish sooner than anticipated,” he wrote recently, as quoted by Bloomberg.


The S&P 500(INDEXSP:.INX), SPDR S&P 500 ETF Trust (SPY) rose $0.35 (+0.12%) in after-hours trading Wednesday. Year-to-date, SPY has gained 8.18%.

SPY currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 157 ETFs in the Large Cap Blend ETFs category.


This article is brought to you courtesy of Investopedia.


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