The S&P 500 could fall another 24%, according to 150 years of market history


(Bloomberg) – The S&P 500 index could fall another 24% by the end of the year, based on the past 150 years of financial market history.

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That’s according to Societe Generale, which calculates that the benchmark gauge may need to fall as much as 40% from its January peak over the next six months to bottom out. That’s 2,900. The upper end of the range given by the company is that the index is crashing about 34% from its peak at 3,150.

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Societe Generale arrived at this range by studying post-crisis stock market valuations from the 1870s, using quantitative analysis, as opposed to factors such as earnings projections and valuations.

“The current market valuation is clearly looking like a bubble from the March 2020 valuation reset and its trajectory,” quantitative strategists including Solomon Tadesse wrote in a research note on Thursday. “Post-crisis fair value dynamics still call for a deeper correction to bring current prices in line with the reset anchor fundamental fair value.”

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The company calculated 3,020 as the fair value for the S&P 500, consistent with its post-crisis market valuation historical trend line. The index gained about 1% on Thursday to 3,796, after Federal Reserve Chairman Jerome Powell said in House testimony that his commitment to curbing price increases was “unconditional.” The S&P 500 has fallen about 20% this year amid recession worries as the Fed raised borrowing costs to fight inflation.

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Granted, not everyone is so bearish. John Stoltzfus, chief investment strategist at Oppenheimer & Co., said Tuesday he was sticking to a January forecast that the benchmark would end the year at 5,330, or 40% above from Thursday’s close.

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