After consumer inflation in the United States disappointed investors’ expectations last Tuesday (13), the stock market interrupted the rally it recently started. The turnaround strengthened negative forecasts for stock markets on Wall Street, along with the possibility that the Federal Reserve will need to raise interest rates more sharply to prevent price increases. There are those who believe that the monetary authority may also make an adjustment of 1 percentage point next Wednesday (21), when the Open Market Committee (FOMC) will meet.
The Consumer Price Index (CPI) for August prompted many households to revise their forecasts, regardless of inflation and interest rates. target of American stock exchanges. After the CPI was slower than expected, XP raised its year-end forecast for the index from 6.2% to 6.4%. Core inflation has been increased from 4.9 per cent to 5.4 per cent. The House has forecast a 75 basis point interest rate hike at next week’s meeting and a 70% chance of a 50-point hike at the Fomc meeting in November.
For the S&P 500 stock index, XP modified target From 4,500 marks to 4,300. And it wasn’t the only house that forecast a drop in numbers after the biggest daily drop in the index in more than two years. Julius Baer explains that Evaluation The S&P 500 was below its last ten-year average as the markets bleed after the August CPI was released.
“Earnings projections are expected to be adjusted downward, while higher interest rates remain Valuation Limited,” wrote the chief economist of the Swiss bank. “For now, we recommend a defensive posture.” Julius Baer also joined the majority, predicting an increase of 75 basis points by the Fed next week.
“The summer rally came to an abrupt end as the Fed reaffirmed its intention to return inflation to target. Since then we have reduced our risk exposure by moving stocks across portfolios. underweight [exposição abaixo da média do mercado]”, commented analysts at Credit Suisse.
For the Levante Ideia de Investimentos, inflation should be slow to deliver and it will barely converge to the 2% target set by the Fed. “It is reasonable to believe in the economy moving slightly above its target in the next cycle. In this sense, the process will not be as brief, nor as jerk-free as expected”, say analysts in the House.
A week before the CPI was released, Morgan Stanley had already lowered its forecast for the S&P 500. The bank is expected to reach the index with 3,400 points by the end of 2022, which represents a decline of 13.8% as compared to the closing date. from tomorrow. In the event of bearishness, the index can reach close to the 3,000 mark. Deutsche Bank predicts a similar scenario. “If the downturn is averted, we expect the market to recover sharply from its previous highs,” wrote strategist Binky Chadha.
Market hasn’t hiked interest rates yet, says manager
In the view of Asa hedge manager, Marcio Fontes, inflation in the United States should remain more persistent than expected by market consensus and result in higher interest rate hikes. According to him, the exchange is yet to price this increase and investors are mistakenly anticipating monetary relief movements which are still far from happening.
“The market is thinking super wrong,” he said, in an interview with macro pickers, “The stock exchange has barely hiked interest rates so far. Nor did they see a drop in profits, which they would have to do, because a recession is necessary for inflation to hit target.
Fontes justifies his argument by stating that a heated labor market – with a ratio of two vacancies per employee – prevents demand from cooling and prices from falling.
“The economy is quite strong in the United States and the technical slowdown had no effect on the macroeconomy,” the manager said. The US entered a technical recession after two consecutive declines in gross domestic product (GDP) in the first and second quarters.
However, Fontes points out that this was only due to greater weakness in the real estate market, which felt the impact of higher interest rates, and a relevant participation in US GDP. And it reinforces that current inflation is an imbalance in the labor market, which generates demand and keeps the prices of products and services high. The manager says that the unemployment rate in the United States, currently at 3.7%, needs to rise to 8% to control inflation.
“The stock exchange is nothing more than a discounted cash flow. If interest rises, so does its price. An interest rate increase of about 1% should cause the stock market to decline by 16 percentage points”, manager of ASA Hedge concluded.