How Much Further Will This Slide Go?
In the latest LPL Market Signals podcast, Chief Equity Strategist Jeffrey Buchbinder and Chief Global Strategist Quincy Krosby share their thoughts on how far this latest pullback might go. They also provide an update on the housing market, discuss rising recession risks in Europe, and preview the Federal Reserve’s Jackson Hole symposium later this week.
How Much Further Might This Slide Go?
The strategists think the Fed’s symposium in Jackson Hole this weekend will go a long way toward determining the near-term direction of the stock market. With just a 4% pullback so far and the inflation battle nowhere near over, additional downside is possible. LPL Research is looking to the 3,900 to 3,950 range as potential support for the S&P 500 Index should further downside materialize. The S&P 500’s 17% rally accompanied by surging breadth in October 2011 was followed by a 10% correction in November 2011, suggesting that additional volatility may come even though the strategists expect stocks to be solidly higher one year from now.
Housing Slowdown Likely to Continue
The strategists noted that the housing market continues to feel the effects of rising interest rates and inflation pressures. Existing home sales fell 5.9% in July, the biggest one-month drop since February 2022 and the sixth straight monthly decline. Outside of the pandemic, sales reached their lowest levels since 2015. Based on lower buyer traffic and the lagged effect of Fed tightening, the housing slowdown is likely to continue and probably weighs on gross domestic product in the second half. The good news for home values is that supply is still tight, keeping the average number of days homes were on the market down at 14 days in July.
Europe’s Energy Crisis Worsening
The strategists discussed rising recession risk in Europe as energy prices continue to skyrocket. German electricity prices have gone parabolic. The strong dollar, while helpful for U.S. tourists going to Europe, and COVID-19-related disruptions in China are putting additional pressure on Europe’s economic growth. At the same time, the inflation outlook in the U.K. is becoming increasingly dire. Meanwhile, prices at the pump in the U.S. based on the AAA national average are down 70 days in a row, supporting LPL Research’s continued preference for U.S. equities over their European counterparts.
What to Expect at Jackson Hole
The Fed will likely reiterate their resolute focus on bringing inflation down this weekend, while also highlighting their data dependence. The strategists still believe the Fed will eventually win the battle on inflation, but it’s unclear how far rates will have to go to accomplish that.
Tune In Now
Listen to the entire podcast to get the LPL strategists’ views and insights on current market trends in the U.S. and global economies. To listen to previous podcasts go to Market Signals podcast. You can subscribe to Market Signals on iTunes, Google Podcasts, or Spotify and find us on the LPL Research YouTube channel.
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Stock investing includes risks, including fluctuating prices and loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
The Standard and Poor’s 500, or simply the S&P 500, is a stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.
The Bloomberg U.S. Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States.
All index data is from FactSet.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This Research material was prepared by LPL Financial, LLC.
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