Predictions and scenarios -
- Between now and the Fed meeting (May 3, 4), the S+P 500 drops to test the Feb/Mar lows (4150), and a test of 4000 is possible.
- Fed raises by 1/2 point at the May 3, 4 meeting
- Assuming no softening in Powell's hawkish verbiage, as the next Fed meeting approaches (June 14, 15) the S+P 500 drops to test the key 3840 area (20% correction / bear market level).
- Fed raises by another 1/2 point at the June 14, 15 meeting, but Powell softens his forward guidance, indicating a moderation in future rate hikes. The S+P 500 rallies and stays above the dreaded correction/bear market level of 3840.
- July 26, 27 Fed meeting - assuming the stock market has stabilized, the Fed raises by only 1/4 point, or alternately, the Fed pauses and has no rate hike in July. Next Fed meeting is Sept 20, 21.
- Meanwhile, by late summer the inflation numbers are starting to showing signs of weakening, and the super tight labor market is becoming less tight, and also by mid-late summer the Ukraine war has reached a resolution.
So.. the stock market manages to stay above 3840, and out of bear market territory. The Fed still wants to tighten in the Fall, but uses 1/4 point increments, combined with conciliatory Powell guidance, and he manages to keep the stock market out of a bear market.
So 3840 on the S+P 500 might turn out to be a decent re-entry point for investors. But still lots of unknowns and landmines, so will see how things unfold.
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