Stock market ‘valuation crush’ lowers US growth expectations: Strategist

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The stock market’s ugly finish to April extended into the first trading session of May as the market recorded one of the worst four-month stretches to begin a year in recent memory.

The S&P 500 is down 13% from January, representing the largest four month decline in the index to start the year since 1939, when the U.S. was in the late stages of of the Great Depression. In April, the index fell by 8.8%, the worst single-month loss since March of 2020.

Equities have taken a hit the past few months as a result of declining valuations across several sectors, Citi Global Wealth Investments Chief Investment Strategist Steven Wieting told Yahoo Finance Live in a recent interview.

“Specific equities [have] posted earnings growing less than everyone [might have] hoped and what we’ve gotten used to,” Wieting said.

Some of those equities include Amazon (AMZN), which endured an ugly 14% drop Friday after a disappointing 2022 Q1 earnings report; Apple (AAPL), which closed last week down over 20% over the past 30 days and fell further after the corporation was hit with an antitrust lawsuit from the EU; and of course Netflix (NFLX), which has been suffering for months now from low subscriber growth.

Smartphone with Netflix logo is placed on a keyboard in this illustration taken April 19, 2022. REUTERS/Dado Ruvic

“It’s really the valuation crush that we’ve had with double-digit losses in the bond market on the year-to-date and the Federal Reserve beginning a tightening cycle into a supply shock,” Wieting said. “So we’ve taken our US growth forecast for this year from 3.5% down to 1.9%. We think that growth next year will be slow as well.”

High-growth stocks have endured the worst of the market woes, as tech companies have continuously struggled with a chip shortage amid rising inflation and higher commodity prices. The tech-heavy Nasdaq has posted losses of almost 22% in 2022.

As the Fed prepares its second rate hike of 2022 to combat high prices, some analysts have predicted that inflation has already peaked and will fall in the coming months.

“I think inflation has likely peaked with an 8.5% CPI reading,” Weitling said. “I think we’ll see a slightly lower reading in April already.” Declining inflation may not in fact be sufficient to prevent economic stagnation, he added.

“Again, the speed at which we see inflation drop is actually not under the Federal Reserve’s control,” he said. “And we see a lot of, again, downward inertia. We have to remember that inflation is a lagging indicator.”

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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