From May 9, 2022, S&P 500 down at least 6 percent since Joe Biden took office:
Who wants to get bragging rights by calling the bottom on this market slide? I’m going to say that the correct value is 3,200 (pre-coronapanic value) plus 0 percent growth for 2020 when Americans cowered in place and 8 percent growth for 2021. Then add 20 percent for the inflation rate that is experienced by people with enough money to buy stock. So today’s correct nominal value is 4,096. Markets tend to overshoot, though, so let’s take 5 percent off that for the bottom: 3,891.
Today the S&P 500 closed at 3,932, down 4.3 percent after the government released inflation numbers.
Let’s look at the chart:
Not a huge change compared to May 9, 2022, at least in nominal dollars, but the index is down in real terms given the inflation that continues to eat away at savings.
My prediction that the stock market would bottom out at 3,891 was wrong. 3,667 on June 16 was the local minimum. But some of the folks who commented were off by even more, e.g., with a prediction of 2,700 (but on the third hand, I didn’t specify a time interval so it is possible that we will yet reach 2,700).
As the 2700 guess, I should say that it doesn’t feel to me like we’ve hit bottom and will now start to recover.
On the contrary, the Fed has continued to fail to reign in inflation and so will now have to hike rates into truly painful territory, which we haven’t yet entered. Yesterdays massive drop was just on expectations that the Fed will have to further raise rates; given the markets overoptimism for the mythical “soft landing,” I’m doubtful they have correctly priced in the full cost of what will have to be massive rate hikes in order to stop what is now thoroughly entrenched inflation.
Meanwhile the federal government continues to pursue inflationary policies, such as the student loan transfer from college attendees to the taxpayers, and so we can’t expect them to help.
Finally, the effect of the Ukraine war and other shocks on the food supply chain have a long lag and so will probably not be felt until later this year. In the latest numbers, food prices rose +0.8% MoM, and I expect we’re just getting started there. What will the economy look like when people can’t afford food? I don’t know, but it doesn’t seem promising.
My 2700 was for the final bottom and I’m sticking to it. As for timeline, I’d say in 3 months if we aren’t closer to my guess than yours (i.e. below 3295) then I will admit that I was overly pessimistic and wrong. For now, I just say: does this feel like it’s about over?