Fear makes chaos the market’s rational base case

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Shares are either poised to plunge further or soar a whopping 30 per cent, depending on whom you speak to. The chances are that no one is right.

P 500 only served to pare its five-session loss to 0.9 per cent, extending a streak of oscillations in which equities have now alternated up-and-down weeks for a month. The index has swung more than 5 per cent in four of the last eight weeks, ending almost precisely where it began.

“Forecasting the level of the broad market at a point in the future is always very difficult, but is especially so now given how uncertain the incoming data and, as a result, the stance of monetary policy is,” said Dean Curnutt, founder of Macro Risk Advisors. “Investors are better served to think about future outcomes from a distribution perspective, based on whether identified risks do or do not materialise.

But the bull case lives at other firms where analysts cling to hopes the economy can avoid a recession should the Fed successfully rein in inflation and profits rise. The highest year-end target for the S“If the economy avoids a recession, then history suggests the bear is close to over,” said Ed Clissold, the chief US strategist at Ned Davis Research who forecast the SP 500 to end the year at 4400, about 14 per cent higher than it is now.

 

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