NEW YORK, May 21 — The Federal Reserve’s determination to raise interest rates until it squashes the highest inflation in decades is darkening the outlook across Wall Street, as US stocks stand on the cusp of a bear market and warnings of a recession grow louder.
A recent survey by BofA Global Research showed fund managers now expect the Fed to step in at 3,529 on the S&P 500, compared with expectations of 3,700 in February. Such a drop would constitute a 26 per cent decline from the S&P’s January 3 closing high. As a result, some investors are digging in for a long slog. BofA’s survey showed cash allocations at a two-decade high, while bets against technology stocks stand at their highest since 2006.
Jason England, global bonds portfolio manager at Janus Henderson Investors, believes the index needs to fall at least another 15 per cent for the Fed to slow its tightening, given that unprecedented monetary policy support helped stocks more than double from their March 2020 lows.The Fed has already raised rates by 75 basis points and is expected to tighten monetary policy by 193 basis points this year.