Seven straight weeks of losses for American stocks and now a narrowly averted collision with a bear market have left Wall Street prognosticators as lost as they were during the coronavirus crash.
While this episode may lack the pandemic's shock, it makes up for it in the sheer number of cross-currents. First and foremost is the Federal Reserve, bent on wringing excess from the economy. Add to that war, snarled supply chains and equity valuations that were recently at two-decade highs.
The result has been a wide variance in predicted outcomes. After another six strategists slashed year-end calls for the S&P 500 this month, the gap between the highest and lowest projection sits at 37%.
That big of a divergence has prevailed only one other time in the past decade at this time of year: just after the tumultuous selloff of March 2020.
Stocks got no easier to interpret Friday. The S&P 500 fell as much as 2.3%, leaving it down more than 20% over five months and at risk of a bear market close.
Buyers swooped in during the last hour and spared the index that ignominy, cutting its loss since Jan. 3 to 18.7%. It still fell more than 3% in the week.
Evidence of investor befuddlement is everywhere. Just this week, beaten-up securities like Cathie Wood's flagship ETF and unprofitable tech companies alternated between gains and losses for five days in a row.
Meanwhile, once-sleepy companies like Walmart Inc. suddenly went wild, and consumer staples plunged more than 8% this week, defying the industry's reputation as a haven during market turmoil.
How bad can things get? To skeptics who drove the S&P 500 toward a bear market, a recession is the inevitable outcome of the Fed's war against inflation.
If you're a bull, you're probably clinging to hope the Fed is making progress toward its goals. Financial conditions have tightened at the fastest pace this far into a hiking cycle since at least 1987.
"The nature of the uncertainty we're facing is different, but the job of Wall Street strategists isn't any easier now than it was during the pandemic," Quincy Krosby, chief equity strategist at LPL Financial, said by phone. "There's zero certainty on where the economy is heading. You have a 'recession' camp, a 'soft landing camp,' and everything in between."
Stocks fell over the past five days, sending the S&P 500 to its longest streak of weekly slides in 21 years. The Nasdaq 100 also posted seven consecutive weeks of declines, a stretch not seen in a decade.
The slump, along with deep losses in fixed income, has led to a tightening in financial conditions, a scenario that accords with Fed Chair Jerome Powell's expectation that policy usually works this way to reach the real economy.
The financial conditions index, as tracked by Goldman Sachs Group Inc., has fallen 1% since the first rate increase two months ago. The pace of tightening at this stage exceeds all previous five hiking cycles, data compiled by Bloomberg show.
