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The stock market is poised to hit new lows later this year following July’s hot job report, Bank of America said in a Friday note.
That’s because inflation is likely to linger and the Fed will be forced to continue tightening financial conditions.
“Still think end-game SPX is [below] 3,600,” BofA said, which represents 13% downside potential.
The stock market is poised to hit a new low in 2022 as good news is now bad news when it comes to investors processing economic data, according to Bank of America’s Michael Hartnett.
In a Friday note, Hartnett said a strong July employment report of more than 400,000 new jobs would result in the stock market ripping lower over the next four-weeks. The July employment report ultimately saw a gain of 528,000 new jobs, more than double economist estimates as the economy proves to be resilient.
The S&P 500 immediately fell 1% after the release of the July jobs report before recovering some of its losses. Hartnett expects the S&P 500 to ultimately trade below 3,600, representing potential downside of 13% from current levels.
The strong jobs report means elevated inflation is likely to linger longer than most think, which means the Federal Reserve will be forced to continue with its policy of aggressive interest rate hikes at the next meeting of the Federal Open Market Committee in late September.
Between now and then, the Fed will have two CPI reports and the August employment report to better gauge if it should raise interest rates by another 75 basis points to combat inflation.
Recall that the recent 14% rally in the stock market was supercharged in July by Fed Chairman Jerome Powell’s comment that the Fed will not forecast future rate hike plans …read more
Source:: Business Insider