Bank of America market strategist Savita Subramanian has predicted the Standard & Poor's 500 will lose another eight percent this year, saying that the “summer rally is over." On Monday, all four major stock indexes on Wall Street opened lower at 9.30 a.m.
The digital currency markets, crypto, precious metals and stocks dropped another leg down following the markets’ fall last Tuesday, one of the worst in more than three months.
In the last 24 hours, digital currency markets fell 1.61 percent, bringing the crypto economy to $933.17 billion. Over the last 24 hours, Bitcoin (BTC) lost 1.67 percent, while Ethereum (ETH) lost 1.79 percent against the US dollar. Precious metals such as gold and silver also fell on Monday, with gold falling 0.12 percent and silver falling 0.74 percent against the US dollar.
“(Bitcoin) and S&P 500 are correlated,” the pseudonymous analyst Plan B tweeted. “However, in the same period that S&P increased from $1K to $4K, (bitcoin) jumped from $10 to $20K. 4x versus 2000x … completely different worlds. Short-term moves are noise, long term trends are the signal.”
Upcoming Fed rate hike
It has been predicted that there will be a significant Fed rate hike this week, with analysts saying the Federal Reserve of the United States will raise the target federal funds rate by 75 basis points.
Subramanian said that the Fed had more work to do but also had lessons from more than four decades ago, which could teach them how to repel potential inflation.
“A hawkish Fed may be anathema for stocks that have benefited from low rates and disinflation (i.e. most of the S&P 500),” Subramanian said. “But lessons from the ’70s tell us that premature easing could result in a fresh wave of inflation—and that market volatility in the short-run may be a smaller price to pay.”
In a report, Bank of America economists forecasted a growth recession. Earlier, the summer forecast had predicted a mild recession in the US economy this year.
On Monday, market analyst Sven Henrich mocked Fed Chair Jerome Powell on Twitter, noting that the central bank was about to implement its third 75 basis point rate hike in a row.
Heinrich cited Powell's statement, saying, "Clearly, today's 75 basis point increase is an unusually large one, and I do not expect moves of this magnitude to be common."
The US dollar has continued to skyrocket against other fiat currencies, while nearly every asset class is affected by rising inflation and the Fed’s monetary policy. The US Dollar Currency Index (DYX) reached 109.756 on Monday afternoon, bringing the euro back to parity with the dollar. On September 19, one Japanese yen equaled $0.0070, and ten-year US Treasury notes hit an 11-year high of 3.518 percent.
If the Fed's not careful something is going to break. pic.twitter.com/inTtO7CZaP— Sven Henrich (@NorthmanTrader) September 16, 2022
Fed fighting inflation
Investment strategy analyst Mary Anderson said that the Fed could fight inflation in a variety of ways. This month, the Fed began a full-fledged quantitative tightening program, reducing its balance sheet by $95 billion per month. The Federal Open Market Committee (FOMC) said they hoped that by reducing the amount of money available in the market, consumers would demand fewer goods, resulting in lower inflation.
Anderson predicted that if the Federal Reserve is unable to slow the rate of price increases, the consequences will spread throughout the economy and asset markets. Households' real income will almost certainly be squeezed, reducing their spending power. Household consumption makes up between 65 percent and 70 percent of the country's total gross domestic product.