Wall Street Is as Baffled by Stocks Now as It Has Ever Been

“I’ve been doing this for 39 years, and my gut is telling me right now this looks a lot like early 2009, before things straightened out. It looks like 1994. It looks like the fourth quarter of 2018,” he said. “These things, if you projected negatively on that point, you missed the rally that followed after things were basically right-sized.”

For context, March 2009 marked the onset of a prolonged bull market that’s born amid the global financial crisis. In 1994, the Fed started a hiking cycle and successfully avoided a recession. And amid plunging stocks in late 2018, the central bank halted its rate hikes and began easing the following year.

For now, policymakers have little sympathy for the market’s bleeding. But investors haven’t given up on their hope for the Fed to step in should things worsen, a concept widely known as the “Fed put.”

In the latest Bank of America Corp. survey, money managers expected that to kick in when the S&P 500 falls to 3,529, a level that’s 9.5% below Friday’s close.

What to Do?

Yet the market’s repeated failures to recover have frustrated even the most skeptical on the Street. Just ask Eric Johnston at Cantor Fitzgerald, whose year-end target of 3,900 is the lowest among strategists tracked by Bloomberg.

In early May, on the heel of the S&P 500’s worst April in five decades, he told clients that stocks were poised for a rebound. Weeks later, the carnage showed no signs of abating and he issued a mea culpa.

For investors, the 2022 stock market is no easy ride either. Conditioned to years of success of dip buying, they poured hundreds of billion dollars into equity funds in the first quarter, only to see losses piling up.

From government bonds to staple stocks, what used to work as haven assets are no longer a sure bet. Soap and toothpaste makers in the S&P 500 suffered their worst weekly drop since March 2020 as results from firms like Walmart showed they’re not as resilient as expected when inflation, rather than demand, is the world’s trouble.

Perhaps more frustrating is the wild gyrations in risky tech stocks. The ARK Innovation ETF (ticker ARKK) changed in directions every day this week, with each move exceeding 1.4%. A Goldman basket of unprofitable technology shares presented a similar pattern, baffling both bulls and bears.

Broadly, professional forecasters are quickly rolling back their what now look like way rosy projections.

Strategists at Wells Fargo Investment Institute cut their year-end view on the S&P 500 for the second time in three weeks Wednesday, saying a mild recession is now its base-case scenario. Deutsche Bank’s Binky Chadha and BMO Capital Markets’s Brian Belski were among those who also lowered their estimates this week.

“Everyone was drinking from the monetary trough and now comes the hangover,” Paul Nolte, portfolio manager at Kingsview Investment Management, said by phone from Chicago. “Everyone’s concerned that the Fed will have to break things before it fixes inflation.”

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