The stock market’s drop the past two days may be a harbinger of a stall to come, say Bank of America strategists led by Savita Subramanian, head of U.S. equity and quantitative strategy.
They have a target of 4,600 for the S&P 500 next year, which represents a 1.3% decline from the current level of 4,660. The index has soared 24% year to date.
“There are too many similarities between today and 1999/2000 to ignore,” the strategists wrote in a report cited by CNBC. They were referring to the dot.com stock bubble of that era.
The bearish factors now include negative real interest rates, exploding inflation, manic initial-public-offering activity and liquidity risks in the world’s largest asset classes, such as U.S. Treasury securities and China real estate, BofA said.
U.S. consumer prices soared 6.2% in the 12 months through October, the sharpest inflation in almost 30 years.
Meanwhile, supply-chain disruption is starting to wane, says JPMorgan Chase. Among the stocks that will benefit are PepsiCo (PEP) - Get PepsiCo, Inc. Report, Caterpillar (CAT) - Get Caterpillar Inc. Report, Schlumberger (SLB) - Get Schlumberger NV Report and FedEx (FDX) - Get FedEx Corporation Report.
“Global supply chain pressures are easing — if this persists, the S&P 500 should continue to deliver strong revenue growth and record margins,” JPMorgan analysts, led by Chief U.S. Equity Strategist Dubravko Lakos-Bujas, wrote in a commentary.
“S&P 500 companies delivered much stronger-than-expected results [for earnings in the third quarter], … and some key companies gave an encouraging outlook on supply chains.
“Our view all along has been that supply and labor shortages would be temporary and normalize with a decline in Covid-19.”