Analysis: GS BAC

The stock market once again hit another speed bump yesterday after Wednesday's dramatic reversal. Yesterday's fall cemented the trend once again of downward movement, and now the indexes find themselves very close to those June lows, circa 3640.

We have been talking about the possibility of this happening for some time, and while it's not a tragedy, here it is important to be alert and remain attentive. There are lower levels to be had if that 3640 low does not hold, as we could see the pre-Covid highs at 3393 come into play. Currently, volatility is not exploding higher, odd as we have now seen the S&P 500 lower by 200 points from Wednesday afternoon! A stunning move.

Banks worldwide are making the adjustment to the Fed's expectations for rates and the economy. It is not a positive for global equities and prices are falling. Economic data has been anemic, pointing towards weakness into the coming months. In the Fed's projections this week, they downgraded GDP severely and raised their expected target of the fed funds rate, and for longer as well.

Today we have the release of several PMI's from around the world, and the US is bracing for another contractionary reading. The global reading overnight dropped sharply as it shows manufacturing slowdowns.

Forecasts and adjustments to the stock market are being passed around the desk today, with Goldman (GS) seeing 3600 as the next trading zone, while Bank of America (BAC) believes markets will trade 10% lower than that! It simply means market participants are coming around to the fact the Fed means business and will do whatever it takes to eliminate inflation, even if the economy rolls over. In the main, this is the right policy - even if there is pain, as Chair Powell stated recently.

Next week is the last trading week of the month and quarter, and with oversold conditions there could be some fireworks before next Friday. We will continue taking a more cautious approach as we let prices settle.