With the S&P 500 holding above 4,000 and the CBOE Volatility Gauge, known as the “Vix” or Wall Street’s “fear gauge,” VIX, +0.64% having fallen to one of its lowest levels of the year, many investors across Wall Street are beginning to wonder if the lows are finally in for stocks — especially now that the Federal Reserve has signaled a slower pace of interest rate hikes going forward.
Some analysts are worried that these recent successes could mean that U.S. stocks have become overbought. Independent analyst Helen Meisler made her case for this in a recent piece she wrote for CMC Markets. Dimming expectations around corporate profits could hurt stocks Earlier this month, equity strategists at Goldman Sachs Group GS, +0.68% and Bank of America Merrill Lynch BAC, +0.24% warned that they expect corporate earnings growth to stagnate next year. While analysts and corporations have cut their profit guidance, many on Wall Street expect more cuts to come heading into next year, as Wilson and others have said.
However, with inflation still well above the Fed’s 2% target, it’s possible — perhaps even likely — that the central bank will need to keep interest rates higher for longer, inflicting more pain on stocks, said Mohannad Aama, a portfolio manager at Beam Capital. Earlier this month, a team of analysts at Bank of America shared a model with clients which showed that inflation might not substantially dissipate until 2024. According to the most recent Fed “dot plot” of interest rate forecasts, senior Fed policy makers expect rates will peak next year.
Market is about to melt up everyone. Marketwatch is the Inverse Cramer of financial advice. Do the opposite.