Market analysts are confirming the expectation of a recession, but now the question is how intense one will be should it arrive. Bank of America forecasts a mild one, which may or may not appease the bulls.
Bank of America’s research team sees a 3,600 year-end target of the S&P 500, which is down from its previous forecast of 4500. Additionally, they see a 5% drop in the stock market as well as less earnings through the rest of 2022 and next year.
“We lower our EPS forecast for ’22 to $218 (4% YoY) from $221 (6% YoY) and for ’23 to $200 (-8% YoY) from $230 (+4% YoY), a 10% peak-to-trough EPS decline,” BofA said. “This is milder than the typical 15-20% economic recessionary decline but healthier consumer and corporate balance sheets and higher nominal GDP should provide offsets.”
Rate hikes will also continue to play a factor in more bearishness, and now market experts are eyeing a big rate hike potentially. Bets on the hike are going from as low as 50 basis points to as high as a full point.
“I think they’ll definitely go big [on a rate hike]. The key question is how big do they go?” James McCann, abrdn senior global economist, said on Yahoo Finance Live. “They have signaled 50 to 75 basis points, maybe even now 100 basis points. Historically [100 basis points] is really big. I think it’s on the table. I don’t think I would have it as my base case yet.”
Betting on More Bearishness
As more bearish tones continue to play out in the capital markets, one fund traders may want to consider with amped-up leverage is the Direxion Daily S&P 500 High Beta Bear 3X Shares (HIBS ). The fund is up about 30% for the year, building off the bearishness in equities, particularly in the S&P 500, which is down close to 20% for the year.
HIBS seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the daily performance of the S&P 500® High Beta Index. The fund invests in swap agreements, futures contracts, short positions, or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index equal to at least 80% of the fund’s net assets.
The index provider selects 100 securities to include in the index from the S&P 500® Index with the highest sensitivity to market movements, or “beta” over the past 12 months as determined by the index provider.
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