Wall Street: the harder the fall?

(Boursier.com) — The pervasive negativism surrounding stocks and accompanying recession fears has sparked a flurry of commentary from strategists at major financial institutions, discussing some of the additional downside risks to the market. Deutsche Bank estimated that if we slipped into recession immediately, they expected the market to correct well beyond the upper half of the historical range, given the initial stock market overvaluation. The German bank thus evokes the possibility of a fall of 35 to 40%, that is to say a broad index S&P 500 of return towards the 3000. The firm currently expects that the S&P price at least an average fall of recession of 24%, implying an S&P near 3650. Bank of America, for its part, believes that the worst-case scenario of stagflation involves an S&P bottom at 3200, which would reflect a typical recessionary ‘draw’ of 33% from peak to trough. Morgan Stanley, which has been one of the more pessimistic brokers so far, noted that the bear market would not be over until valuations fall to levels (multiples of 14-15x) that take into account the expected declines in earnings.

In short, banks and brokers are waking up late, while the American market has already largely corrected. However, it is always worth recalling historical bear market data, as concerns about an impending recession grow and the Fed has virtually no room to maneuver given the very high level of inflation. 68% of executives fear Fed tightening will trigger some form of recession, according to the Conference Board. The markets already seem to have greatly anticipated this weakness. Goldman Sachs observes that the S&P is now down about 18% from its highs, compared to an average contraction of 24% in 12 recessions since World War II (Bloomberg data). An unprecedented drop of around 5% in S&P dividends is also possible in 2023. JP Morgan’s Marko Kolanovic, a strategist known for his usually particularly bullish positions, does not see a recession this year, thanks to resilient consumer activity and political support from China…