Investors who think the stock market has benefited from a recession after the recent stock market crash should think again.
Analysts Mike Wilson of Morgan Stanley and Nick Colas of Datatrek are warning that the S&P 500 could drop another 20 percent if there is an economic downturn, as many indicators suggest.
“At current prices, it is highly unlikely that stocks will reflect the most likely future earnings scenario for companies in a recession,” Colas wrote in an update, according to CNBC.
Morgan Stanley’s Wilson says the recent rally in the stock market won’t last.
“We continue to believe that any short-term recovery will not hold, with lower levels ahead,” he says.
stock market falling
The stock market year was already very painful, and the S&P 500 had its worst half year since 1970.
So far this year, the index is down 18.7 percent.
Sentiment rose amid concerns that the US Federal Reserve (Fed) will raise interest rates to tame inflation. At the same time, the war in Ukraine led to volatile markets.
Goldman Sachs this week lowered its forecast for US second-quarter gross domestic product. Wells Fargo expects more aggressive policy from the Federal Reserve, and that a mild recession may be imminent.
Colas argues that a market downturn is subject to how much corporate profits have fallen. In a moderate recession, there is an average drop of 25 percent. If things really get worse, profits could drop by 50 percent, according to CNBC.