Volatility expert Harley Bassman said stocks could drop as much as 20% from where they are now after Fed officials continued to come out in support of continuing to lift borrowing costs.
Optimism that the Federal Reserve might back off of its aggressive interest-rate hikes is giving way to something else within financial markets: a feeling that things won’t likely get better for investors from here.
“ ‘If you look at the 12 stages of grief, the first stage is the state of denial, and that’s where we are.’ ”“We risk now seeing an orderly decline in markets become disorderly, and it’s almost impossible to tell where the sense of dislocation comes from in advance,” said Phil Toews, chief executive and lead portfolio manager at Toews Corp., which manages $2.2 billion in assets. He referred to the meltdown in the U.K.
Don’t miss: Bank of England official says $1 trillion in pension fund investments could’ve been wiped out without intervention On Wednesday and Thursday, though, Fed policy makers including San Francisco Fed President Mary Daly, her colleagues Raphael Bostic from Atlanta and Neel Kashkari of Minneapolis threw cold water on the idea of a pivot. Stocks DJIA, -1.15% SPX, -1.02% COMP, -0.68% reacted accordingly — finishing modestly lower on Wednesday and down again on Thursday after Kashkari said the central bank is nowhere near being able to pause its aggressive interest-rate hikes.
The potential for a 20% stock-market decline from current levels is “dependent upon corporate earnings declining, which would be a consequence of significant rate increases, specifically in the housing market,” Bassman wrote.
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