US stocks could fall face a dip of 5% or more before the end of this year, a veteran Wall Street analyst has said, after consumer confidence hit its lowest level since November.
Sam Stovall, CFRA Research’s chief investment strategist, said a tech-driven recent rally of share prices could come to an end after data for June showed that Americans were feeling gloomy about the economy.
He warned that tech was “the only outperforming sector” as AI chipmaker Nvidia surged earlier this week to become the world’s most valuable company ahead of Apple and Microsoft, worth more than $3.3 trillion.
“How long can this jumbo jet fly on only one engine?,” Stovall said in an interview with Yahoo.
“I am getting increasingly concerned that we have to endure another decline of 5 percent or more before the year is out.”
“If we start to see other economic indicators that point to an economic slowdown that causes investors to worry that maybe we are headed for a recession,” he added.
Stovall, who previously served as a managing director for S&P Global, compared a possible downturn to a “resetting of the dials” or “digestion” after a big meal.
He said that the S&P 500 had seen its 11th-best first quarter return since the end of World War II after surging by more than 10% in the first three months of this year.
The analyst said there was “a silver lining” because the top 15 years of returns “posted full year gains with the average being above 20%.”
He added, however, that 14 of those top-15 returns were followed by a decline of at least 5% or more – with some drops of more than 12%.
Investors, Stovall said, could still get “tripped up” by any “unanticipated” bad economic news, such as a bank failure, that would slam the brakes on any future rise in stock prices.
US stock markets are where most Americans invest their savings to prepare for their retirement so any swings in prices can directly affect a retiree’s potential income.
Most employees hold a private 401(K) pension which is topped up with employer contributions.
Senior executives have sounded the alarm of a possible slowdown in the economy in recent weeks, blaming rising prices and high interest rates.
Bank of America CEO Brian Moynihan last month warned that consumers and businesses were reining in their spending.
“Both of our customer bases that have a lot to do with how the American economy runs are saying, ‘You know what? I’m being careful, slowing things down,” he told investors on May 30.
And former Home Deport and Chrysler CEO Bob Nardelli blamed the Biden administration for “overspending”, warning that the “fault lines” in the economy were “ready to crack” in an interview with Fox Business last month.
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