"Secular inflation + end of era of QE + end of era of US buybacks + our expectation 'no landing' in H1'23 leads to 'hard landing' in H2'23... this keeps us bearish," Hartnett wrote on Friday. "Nibble at S&P 3,600, bite at 3,300, gorge at 3,000," Hartnettwhich would represent a sell-off in the S&P 500 of as much as 26% from current levels and a new cycle low in the current bear market.
The thinking goes that if wage inflation is subdued, it would give the Federal Reserve the green light to end its interest rate hikes and even consider cutting interest rates, as wage inflation is viewed as a primary drive of overall inflation. And even if a recession does arrive, Hartnett admits the bulls have something up their sleeve that the bears will never have: scared policymakers.
Another factor that could help the stock market perform better than Hartnett currently expects is the long lag between the Fed hiking interest rates and those hikes negatively impacting the economy.
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