The stock market will fall 13% to a new low for the year after a hot jobs report means inflation will linger and the Fed will keep tightening, Bank of America says

Traders work on the floor of the New York Stock Exchange (NYSE)David Dee Delgado/Getty Images
The stock market is poised to make fresh lows later this year after July's hot jobs report, Bank of America said in a statement Friday.
That's because inflation is likely to persist and the Fed will be forced to tighten funding conditions further.
"I still think the endgame SPX is [below] 3,600," BofA said, representing a 13% downside potential.
According to Bank of America's Michael Hartnett, the stock market will make a new bottom in 2022 as good news is now bad news when it comes to investors digesting economic data.
In a statement on Friday, Hartnett said a strong July jobs report with more than 400,000 jobs added would cause the stock market to tear lower over the next four weeks. The July jobs report finally showed 528,000 new jobs added, more than double economists' estimates as the economy proves resilient.
The S&P 500 fell 1% immediately after the July jobs report was released, before recouping some of its losses. Hartnett expects the S&P 500 to eventually trade below 3,600, which represents a potential downside of 13% from current levels.
The strong jobs report means that elevated inflation is likely to last longer than most think, meaning the Federal Reserve will be forced to continue its policy of aggressive rate hikes at the next Federal Open Market Committee meeting in late September.
By then, the Fed will have two CPI reports and the August jobs report to better assess whether it should hike rates another 75 basis points to fight inflation.
Recall that the recent 14% rally in equity markets in July was marked by Fed Chair Jerome Powell's comment that the Fed will not forecast future rate hike plans and will instead focus solely on incoming data to make its decision. and leaves the door open, has been charged for a possible pivot.
If economic data continues to be strong and inflation continues, Hartnett said we can expect more rate hikes, which will eventually push the stock market lower.
"[It] is very tough for inflation [of] 2% to 3% [over the] next 12 months without [a] big recession," Hartnett said.
A recession seems less likely, however, as the US economy has added more than 3 million jobs so far this year, which has helped push the unemployment rate down to just 3.5%. Meanwhile, unemployment insurance claims remain near historic lows. This strength in the labor market is not typical of an economy teetering on the brink of recession.
Still, high inflation and modest economic growth could open the door to stagflation, which Hartnett says will return in the fourth quarter of the year and present a major short opportunity for investors.
“Painful rally for many. We say fade S&P 500 above 4,200, short S&P 500 above 4,342,” Hartnett said.
Read the original article on Business Insider

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