US stocks are staging a furious rally on Tuesday but top strategists at Societe Generale and Goldman Sachs Group warn of more declines ahead as equities have yet to fully price in the risk of a recession.
The technology-heavy Nasdaq 100 and the S&P 500 each surged more than 2.6% on Tuesday following a sharp rout last week that sent the US benchmark index into a bear market. While the selloff is luring investors chasing cheaper valuations, SocGen’s Manish Kabra says a “typical” recession will see the S&P 500 Index falling to 3,200 points-- nearly 13% below its Friday close before the holiday.
And a 1970’s-style inflation shock could send the index crashing about 30% from current levels amid stagnation with higher inflation, the strategist wrote in a note. The key read-across from the 1970s is when investors start to believe that inflation will stay high for longer, equity markets begin to focus on real instead of nominal earnings-per-share rate, which for this year is likely to be negative, SocGen said.