S&P 500 seems to have regained some momentum ahead of the big tech earnings, considering it closed the recent week up more than 3.0%. But Greg Branch (Veritas Financial Group) says this uptick will likely prove to be another “head fake” only.
Branch defends his bearish view on CNBC
There’s increasing evidence, he cautions, that the U.S. Federal Reserve could go as high as 5.0% on its key rate and create more pain for the equities market moving forward.
Earnings estimates that continue to be rather aggressive also fed into his dovish view. On CNBC’s “Closing Bell: Overtime”, Branch said:
Even if the economy stays flat next year, 2023 earnings estimates need to come down 7.0% and so equities just aren’t safe in the wake of macro-global turmoil combined with us being at the beginning of QT.
The benchmark index is currently down over 20% for the year.
Would it matter if the Fed chooses to pause?
Branch entertained the possibility of a pause after two more rate hikes this year but doesn’t see it enough for the start of a new bull market.
A return to cutting rates, he noted, is of essence for the market to bottom – and that’s unlikely anytime soon.
What’s going to make them pivot is: we either need to see labour market approach 5.0% unemployment, or a major contraction in the economy, or inflation come down by 200 bps. We haven’t seen any of these.
Last week, consumer prices were reported up 0.4% for the month of September, reiterating that inflation was indeed stickier than expected.
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