Equity indexes are flirting with thresholds that have acted as buffers during past selloffs. But in the eyes of Rich Ross, such support can’t be trusted until the Federal Reserve turns less hawkish.
The Evercore ISI analyst -- ranked as the No. 1 technical analyst in last year’s Institutional Investor survey -- says his conviction that the 2022 bear market would form a floor this month has faded lately, as stresses spread in assets from British bonds to the Chinese yuan while the Fed is hellbent in its inflation-fighting campaign.
The skepticism marks a notable shift for Ross, who in August pronounced an end to the current bear run, citing everything from chart patterns to peak inflation and investor sentiment. Rather than extending the summer bounce, however, the S&P 500 has fallen to fresh lows amid concern that central bank tightening will thrust the economy into a recession.
“The top-down forces weighing on stocks across currencies and credit are at historic extremes which can be reversed by one Fed comment or CPI print, but that has been the case for weeks,” Ross said in an interview. “Anticipating that pivot has been a costly fool’s errand.”
Ross is the latest in the growing number of equity bulls who have learned not to fight the Fed. Last month, JPMorgan Chase & Co.’s strategists led by Marko Kolanovic said a more hawkish central bank is one reason why their year-end targets for the market may not be realized until 2023.
Lori Calvasina, head of US equity strategy at RBC Capital Markets, on Wednesday lowered her 2022 price target for the S&P 500 to 3,800 from 4,200, saying she underestimated the rate pressure on equity valuations.
The S&P 500 added 0.1% as of 10:40 a.m. in New York, poised to snap a five-day slide ahead of government data on the consumer price index due Thursday.
The Fed is expected to raise interest rates by another 75 basis points next month, extending the most aggressive inflation-fighting campaign since Paul Volcker was the head of the central bank.
History’s message for markets from the Volcker era is a sobering one. As Fed tightening began to bite in 1980, spurring a brief relaxation in its pace, the S&P 500 bounced 43% over about eight months. The gains proved short-lived, and it wasn’t until halfway through 1982 that stocks began a lasting recovery.
The lesson has rung true this year, rebuffing anyone who has dared to call the bottom in stocks. The summer rally faltered even after the S&P 500 recouped half its bear-market decline incurred between January and June, defying a 50% indicator that was touted as a tool with a perfect record of calling the start of a new bull.