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According to CFRA’s Sam Stovall, the S&P 500 is expected to fall 5%.
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Veteran strategists have warned that the stock market is in a seasoned situation.
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He warned that the market could see its first “crack in the ice” in the technology sector.
The stock market is headed for a correction as three adverse factors weigh on stock prices, according to Sam Stovall, chief investment strategist at CFRA Research.
Pointing to stocks’ strong performance so far this year, the Wall Street veteran predicted the S&P 500 will rise 15% in 2024. But he predicted the benchmark index is on track to fall 5% due to a bear market in interest rates, inflation and stock valuations.
Inflation is falling but remains above the Federal Reserve’s 2% target, with the central bank expecting just one rate cut by the end of the year.
Rising rates have caused the longest inversion on record for the two- and 10-year yield curve, a well-known bond market gauge for gauging the coming of an economic downturn. The indicator, which lights up when the yield on the two-year note rises above the yield on the 10-year note, has been a reliable sign of recession throughout history, and economists say this time is no exception.
Stock valuations are also historically high, which could signal future declines. Stovall noted that the S&P 500 is 32% over its average price-to-earnings multiple over the past 20 years. Tech stocks, which have dominated the market in recent years, are trading at a 68% premium.
“We’re in a pretty tough spot, and I think we needed to raise our earnings guidance to justify it,” Stovall said in a recent interview with CNBC.
He pointed to skyrocketing valuations for big tech stocks, adding that for the first time in the tech sector, stock prices could “tumble.”
“The only thing outperforming the market is tech. It’s like a jumbo jet flying on one engine and you wonder how much longer it will last,” he warned.
Other forecasters have warned that the market has limited upside potential as stocks, particularly tech stocks, continue to rally. According to one valuation metric, the stock market appears to be the most overvalued since 1929, which could lead to a sharp correction, warned elite investor John Hussman.
Read the original article on Business Insider
