-
According to CFRA’s Sam Stovall, the S&P 500 is in for a 5% decline.
-
The veteran strategist cautioned against an experienced background for stocks.
-
The market could see its first “crack in the ice” in the technology sector, he warned.
The stock market is in for a correction as a trio of unfavorable factors will weigh on stock prices, said Sam Stovall, chief investment strategist at CFRA Research.
The Wall Street veteran pointed to the stocks’ strong performance so far this year, with the S&P 500 set to rise 15% in 2024. However, the benchmark index is about to fall 5%, he predicted, thanks to the bearish stance on interest rates. inflation and stock valuations.
Inflation is easing but still above the Federal Reserve’s 2% target, leading central bankers to predict only one rate cut by the end of the year.
Higher interest rates have led to the longest ever inversion of the 2-10 Treasury yield curve, the famous indicator of a coming bond market recession. The indicator, which flashes when the 2-year yield exceeds the 10-year yield, has been a reliable recession signal throughout history, and economists have said this time is likely to be no different.
Stock valuations are also high by historical standards, indicating a future downward trend. The S&P 500 has a 32% premium to its average price-to-earnings ratio over the past 20 years, Stovall said. Technology stocks, which have dominated the market in recent years, are trading at a 68% premium.
“I think we’re very stretched and we’ve had to see some upward revisions to earnings estimates, I think, to justify that,” Stovall said in a recent interview with CNBC.
Stocks could see their first “crack in the ice” in the tech sector, he added, pointing to lofty valuations among mega-cap tech stocks.
“It’s just the technology that is outperforming the market. I feel like this is a jumbo jet flying on one engine, and you wonder how long it will stay in the air,” he warned.
Other forecasters have warned of limited upside potential for the market as stocks – especially technology stocks – continue to rise. By one valuation measure, the stock market appears to be the most overvalued since 1929, which could set the stage for a steep correction, elite investor John Hussman warned.
Read the original article on Business Insider
