- David Hunter sees a melt-up and subsequent meltdown ahead.
- Hunter believes the S&P 500 will climb to 6,000 before falling 80%.
- He said rising rates in the bond market have already caused more damage than people realize.
David Hunter thinks the stock and bond markets are at a turning point.
Bond yields are about to fall significantly, and stocks will correspondingly soar, he says. Hunter, the chief macro strategist at Contrarian Macro Advisors, believes the S&P 500 is due to jump 40-50% over the next 3-6 months.
This is in large part because sentiment is over-bearish right now, Hunter said during an interview with the YouTube channel Wealthion, and will turn around.
“I’m fully aware I’m making a crazy call,” Hunter said.
“I really think this is a once-in-a-generation type of final parabolic rally into a top and in spite of what’s going on with interest rates and in spite of what’s going on in Ukraine, and really because of all the bearishness in the market,” he added.
But sometime in the next year, he believes markets will hit another inflection point — a much more bearish one.
Hunter, who has been working in financial markets since 1973, has said in recent interviews that following the “melt-up” phase, stocks will fall as much as 80% before the economy enters a “bust.”
He cited the tightening that has already transpired in the bond market — in anticipation of tightening by the Federal Reserve — as the eventual cause of the downturn given that the economy is already what he described as fragile amid supply chain issues and 41-year-high inflation.
“I think the seeds are already sown,” Hunter told Wealthion. “I think we’ve done much more tightening than anybody realizes.”
In an interview with Insider on Friday, Hunter added: “I think the bond market looked at inflation and then started listening to the rhetoric of the Fed starting to recognize it’s not transitory.
“We’ve had 2-year rates go from a quarter point up to 2.5 or higher,” he said, adding that mortgage rates have also risen. The federal funds rate tends to follow shorter-duration bond yields, like those of the 2-year Treasury note.
In recent weeks the bond market signaled low confidence in the economy’s near-term prospects when 2-year Treasury yields rose above 10-year yields. The so called inverted yield curve has been one of the most reliable recession indicators over the last several decades, though inversions typically happen many months in advance of the recession occurring.
Hunter has said in a number of interviews he believes the magnitude of the drop in stocks will partly be because of the amount of leverage in the market in the form of derivatives and government debt.
Hunter’s views in context
Hunter’s calls, by his own admission, are fairly extreme. Few strategists at major Wall Street banks have made explicit recession calls, and if they have, they’ve been for the end of 2023 or early 2024. Calls for a corresponding bear market have also been less severe.
Deutsche Bank recently became the first big bank to say they expect a recession ahead, but they anticipate it will occur in late 2023. They also said stocks would fall 20% as a result.
Credit Suisse’s Chief US Equity Strategist Jonathan Golub told Insider last week his best guess for when a recession would begin in the US would be early 2024, give or take six months before or after. In the meantime, however, stocks look attractive, he said.
But other firms remain more bullish while acknowledging that the chance for a recession exists. Goldman Sachs, for example, says there’s a 35% chance of a recession in 2022. And BlackRock’s Global Chief Investment Strategist Wei Li told Insider on Friday that she is still bullish on US stocks, despite her view that the risk of the Federal Reserve tightening too much and triggering a downturn — not her base case — has increased since the start of the year.
The Fed itself puts the odds of a recession in 2022 at around 5%.
Federal Reserve Bank of Cleveland
Overall, Wall Street strategists are fairly bullish on the market’s prospects this year, with the average 2022 S&P 500 price target at around 4,900. The index currently sits at around 4,293. Still, Hunter is probably the only strategist out there that sees the index climbing to 6,000 this year. Oppenheimer’s John Stoltzfus is the most bullish on the Street at 5,330.
Hunter’s characterization of the economy as “fragile” is also debatable. The labor market remains strong with robust job growth and a low unemployment rate of 3.6%. Consumer spending and household savings are also still favorable.
But there is uncertainty around how the Fed will respond to persistently rising inflation, now at 8.5%. Some believe the central bank will be forced to tighten until the economy goes into a recession, assuming inflation doesn’t slow down.
According to Hunter, they’ve already effectively done so.
from Stock Market News – My Blog https://ift.tt/aVMkU2Q
via IFTTT
No comments:
Post a Comment