Stock market could plunge another 24% next year, Bank of America warns

Revere Securities non-executive chairman Kyle Wool discusses whether the Fed will continue to aggressively hike rates at December's FOMC meeting on 'Varney & Co.'is not out of the woods yet and could face further volatility next year as a result of the Federal Reserve's quantitative tightening, according to Bank of America strategists.

In an analyst note this week, the analysts led by Savita Subramanian warned the Fed's shrinking of its balance sheet could fuel liquidity risks in different areas of the market. Bank of America projected a base-case scenario of flat returns in 2023, with the S&P 500 finishing the year at 4,000 – up just 0.9% from Monday's close.

But it warned of major volatility in the market throughout the year and said that in a so-called bear-case scenario, the S&P benchmark index could tumble another 24% from current levels to 3,000. Jerome Powell, chairman of the U.S. Federal Reserve, arrives to speak during a news conference following a Federal Open Market Committee meeting in Washington, D.C., on Sept. 21, 2022.The uncertainty stems from the "unprecedented leverage risk" in governments and central banks, which could lead to liquidity risks popping up in "odd places" as the Federal Reserve reduces its roughly $8.6 trillion balance sheet at a pace of $95 billion a month.

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Or it could rise 24% next year. My prediction is as sound as yours.

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