CAPE TOWN (BLOOMBERG) – Money managers betting on a sustained global rebound will be left sorely disappointed in the second half of this crushing year as a protracted bear market looms, even if inflation cools. The good news: After the historic plunge, stocks and bonds are not far from bottoming out.
That is the key message for Wall Street and beyond in the latest MLIV Pulse survey by Bloomberg, after another week plagued by recession worries. The more than 1,700 respondents harbour plenty of fear that the Federal Reserve will end up triggering an economic downturn by ramping up interest rates to tame price pressures that remain largely supply-side driven.
Yet, survey contributors are less bearish on the market outlook than the professional class of doom-mongers – projecting much of the pain is already priced in.
After succumbing to a bear market, the S&P 500 Index is seen closing 2022 at 3,700. While that is far lower than the Wall Street consensus, it is a modest 5 per cent decline from last week’s close – and above the lows already notched this year.
Meanwhile, the 10-year Treasury yield is seen edging up to 3.5 per cent. While that would constitute an 11-year high, it is mercifully lower than the 4 per cent pain threshold set by the likes of Bridgewater Associates.
So after the dramatic sell-off in the first half, another big rout to close out this exhausting year is seen as unlikely.
On the flip side, MLIV readers say a rally in the coming months would prove nothing more than a bear market bounce as growth risks mount.
“Valuations look pretty reasonable,” Mr Michael Bell, a global market strategist at JPMorgan Asset Management, said on Bloomberg TV.
“If we get a recession, then I think there is potentially further downside. But with markets down as much as they are year to date, it is going to be hard to sell at these levels and buy back in cheaper.”
Tightening by the Fed and other major central banks has roiled global stock markets this year, with the S&P 500 down 18 per cent and the Nasdaq 100 losing 26 per cent. The 10-year Treasury yield has doubled in a bond-market sell-off, the likes of which the world has not seen in more than two centuries, according to Deutsche Bank.
Geopolitical risks are also preying on investors’ minds with Russia’s war in Ukraine driving up commodity prices. While the rout may not be over, the bottom may not be far off, the survey suggests.
The median projection that the S&P 500 will close out the year at 3,700 marks an increase from the 3,500 bottom that survey participants predicted just a month ago. It is also far higher than the gut-wrenching 2,900 forecast from quant strategists at Societe Generale.