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Bulls probably don’t want to hear this, but the bottom of this current bear market cycle may not be in place yet.

“Frankly, the history of bear markets is that when you think about it in the context of the lows we had in October, no bear market has ever gone as far as a recession,” said Evercore ISI strategist Julian Emanuel. Yahoo Finance Live (video above). “We don’t necessarily need to see the full breadth and depth of the recession, we need to see the beginning of it.”

Emanuel believes the stock market will decline in the first half of 2023 as Wall Street’s economic and earnings forecasts better reflect a recession. The veteran strategist then sees the stock rallying through the end of 2023, with the S&P 500 eventually reaching around 4,150.

The S&P 500 is currently at 3,895, about 11% above its mid-October low. But those lows could re-emerge as the Federal Reserve continues to pursue its goal of reducing inflation.

The Fed raised interest rates by an expected 50 basis points on Wednesday, pushing the benchmark interest rate to the highest level since 2007. However, the central bank also surprised market watchers in two ways.

First, the Fed’s updated economic projections showed that officials see interest rates reaching 5.1% in 2023. That’s an additional 50 basis points higher than they predicted back in September.

This image was created by Yahoo Finance using OpenAI’s Dall-E platform. (OpenAI)

Second, Fed Chairman Jerome Powell sounded more hawkish on the central bank’s policy path than some had expected. Ahead of the announcement, talk had been growing that the Fed would only raise interest rates by 25 basis points at its February 2023 meeting amid cooling consumer prices and slowing labor market growth. That may no longer be the case.

Stocks ended Wednesday’s session slightly lower. A deadlock of selling opened on Thursday, however, amid concerns that the Fed will remain too aggressive in raising interest rates and push the economy into recession.

The Dow Jones Industrial Average fell more than 750 points, and all 30 Dow components were in the red with a save by Verizon ( VZ ) , boosted by an upgrade from Morgan Stanley. Losses on the blue-chip index were led by IBM ( IBM ), Apple ( AAPL ) and Disney ( DIS ).

“The Fed confirmed that to us yesterday [recession] It is very likely that it will happen,” said Emanuel. “But it has not yet arrived. And with that arrival, we expected to see what we would call more capitulation-type action in the market.”

Other street strategists are in Emanuel’s camp.

“We expect 2023 to be a back-and-forth year with double-digit selling driven by Fed and economic concerns,” Wells Fargo strategist Chris Harvey wrote in a new note. “Ultimately, we see stocks ending higher as inflation fever subsides, the economy enters a bad state (not a sharp decline) and interest rates plateau.”

Brian Sozzi is a great editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi: and on and on LinkedIn:.

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