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How far will the stock market slide go?

How far will this slide go?

In the latest LPL Market Signals podcast, Chief Equity Strategist Jeffrey Buchbinder and Chief Global Strategist Quincy Krosby share their thoughts on how far this latest pullback could go. They also provide an update on the housing market, discuss rising recession risks in Europe and preview the Federal Reserve’s Jackson Hole symposium later this week.

How much further could this slide go?

Strategists believe this weekend’s Fed symposium in Jackson Hole will go a long way in determining the short-term direction of the stock market. With only a 4% pullback so far and the inflation battle far from over, additional downside is possible. LPL Research is eyeing the 3900-3950 area as potential support for the S&P 500 Index should further downside materialize. The 17% rally in the S&P 500, accompanied by strong broad-based action in October 2011, was followed by a 10% correction in November 2011, suggesting that additional volatility could materialize, although strategists expect stocks to return to a higher level in a year will rise solidly.

The slowdown in housing construction is expected to continue

The strategists noted that the housing market continues to feel the effects of rising interest rates and inflationary pressures. Existing home sales fell 5.9% in July, the biggest one-month drop since February 2022 and the sixth straight monthly decline. Outside of the pandemic, sales hit their lowest level since 2015. With less buyer activity and the lagged effect of Fed tightening, the slowdown in housing construction is likely to continue and likely weigh on GDP in the second half of the year. The good news for property stocks is that supply is still tight, which has brought the average number of days properties have been on the market down to 14 days in July.

Europe’s energy crisis is worsening

Strategists discussed a rising risk of recession in Europe as energy prices continue to soar. German electricity prices have risen parabolically. While the strong dollar is helping US tourists traveling to Europe, and disruptions in China caused by COVID-19 are putting additional pressure on economic growth in Europe. At the same time, the inflation outlook in the UK is becoming increasingly gloomy. Meanwhile, prices at the pump in the US based on the national AAA average have fallen for 70 straight days, supporting LPL Research’s continued preference for US stocks over their European counterparts.

What to expect in Jackson Hole

The Fed is likely to reiterate its determined focus on cutting inflation this weekend while emphasizing its data dependency. Strategists still believe the Fed will eventually win the battle against inflation, but it’s unclear how far rates will need to go to achieve that.

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Listen to the entire podcast for LPL strategists’ views and insights on current market trends in the US and global economy. To listen to previous podcasts go to the Market Signals Podcast. You can subscribe market signals on iTunes, Google Podcasts or Spotify and find us on the LPL Research YouTube channel.


IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations to any individual. There can be no assurance that the views or strategies discussed are suitable for all investors or will produce beneficial results. Investing involves risk, including a possible loss of capital. All economic forecasts presented in the podcast may not turn out as predicted and are subject to change.

References to markets, asset classes and sectors are generally to the relevant market index. All indices are unmanaged and cannot be invested directly. Index performance is not an indication of the performance of any investment and does not reflect any fees, expenses or sales charges. All performances shown are historical and not a guarantee of future results.

Investing in shares involves risks, including price fluctuations and loss of capital. Bonds are subject to market and interest rate risk if sold before maturity. Bonds will decrease in value as interest rates rise, and bonds are subject to availability and price changes.

High yield/junk bonds (rated BB or below) are not investment grade securities and are subject to higher interest rate, credit and liquidity risks than those rated BBB and above. They should generally be part of a diversified portfolio for experienced investors.

All company names mentioned herein are for educational purposes only and are not an indication of commercial intent or a solicitation of their products or services. LPL Financial does not provide research on individual stocks. All information is believed to be from reliable sources; However, LPL Financial does not guarantee its completeness or accuracy.

The Standard and Poor’s 500, or simply the S&P 500, is a stock market index that tracks the performance of 500 large companies listed on stock exchanges in the United States.

The Bloomberg US Aggregate Bond Index, or Agg, is a broad-based, market capitalization-weighted bond market index representative of medium-term, investment-grade bonds traded in the United States.

All index data is from FactSet.

All information is believed to be from reliable sources; However, LPL Financial does not guarantee its completeness or accuracy.

This research material was prepared by LPL Financial, LLC.

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