Extreme fear has officially returned to the market, according to CNN’s Fear & Greed Index. The S&P 500 and the Nasdaq 100 are both down by around 3% today, although both indices are trading much higher compared to their overnight prices.
The decline follows a weaker-than-expected jobs report and the Federal Reserve’s decision to keep rates unchanged between 5.25% and 5.5%. According to the CME FedWatch tool, the market now expects an 83.5% chance for a 50 basis point rate cut during the next Fed meeting on Sept. 18, up from 11.4% a week ago and 5.5% a month ago.
JPMorgan has a similar opinion, as the selloff has resulted in the investment bank now expecting a 50 basis point rate cut in September followed by another 50 bps drop in November. The firm has also assigned a 50% chance for a recession.
“Indeed, a case could be made for an inter-meeting easing, especially if the data soften further—although Fed officials might worry about how such a move could be (mis)interpreted,” said JPMorgan.
4 Wall Street Analysts Weigh In on Monday’s Market Selloff
As for Morgan Stanley, the firm takes a fundamental stance and believes that the focus should be whether companies can deliver future earnings that will support their current prices. Morgan Stanley points out that the market is entering a period of seasonal weakness while guidance from many companies has pointed to doubts about a second half reacceleration.
“This argues for lower equity valuations, which lines up with our base case target multiple of 19x versus the current 20.5x,” said the firm.
Nomura is more bullish. Its baseline view is that the pullback should be seen as a buying opportunity as long as the “Fed put” is in place. The Fed put is the belief that the Fed will step in with accommodative actions if the market falls too much. Nomura added that the market could experience a rough stretch if companies are unable to capitalize on the artificial intelligence (AI) boom and miss analyst estimates.
UBS adds that the Volatility Index (VIX) above $25 has historically been a buying signal, although the firm stated that “the risks appear to be skewed more asymmetrically to the downside.”
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
