Stocks could slide 10% back to October lows over the next three to six months, according to Evercore’s Julian Emanuel.
That’s because a recession could strike the economy this year, and stocks have historically bottomed before a downturn.
The Fed will keep raising interest rates, Emanuel warned, lowering the odds of a soft landing.
Elon Musk, Paul Krugman, and Jeremy Siegel are warning the Fed risks hiking rates too high and tanking the US economy. Here’s where 7 experts see danger.
Elon Musk, Paul Krugman, and Jeremy Siegel say the Fed may be going too far with its rate hikes.
Bill Gross and David Rosenberg have also warned the central bank against tanking the US economy.
Here’s what 7 experts have said about the danger of an overzealous Fed.
Elon Musk, Paul Krugman, and Jeremy Siegel have warned the Federal Reserve risks going too far in its fight against inflation, raising the prospect of a painful recession.
Bill Gross, David Rosenberg, Robert Herjavec, and Ed Yardeni have also urged the US central bank not to hike interest rates too high, given the potentially devastating impact on the economy.
Here’s a roundup of the 7 experts’ cautions to the Fed:
Elon Musk
“The Fed is raising rates more than they should,” Musk said on Tesla’s third-quarter earnings call. “But I think they’ll eventually realize that and bring it back down again.”
The Tesla CEO and Twitter owner suggested the US central bank is overly focused on lagging indicators of inflation, and not paying enough attention to what’s ahead.
“The Fed is not listening, because they’re looking at the rearview mirror instead of looking out the front windshield,” Musk said.
Paul Krugman
“I see a strong case that the Fed has already done enough,” Krugman said in a recent column. “You want to shoot ahead of a moving target, not behind it.”
The Nobel Prize-winning economist pointed to the sharp decline in trans-Pacific shipping costs, plus flagging demand for apartments, as evidence of the inflation threat waning.
He also flagged the strong dollar’s dampening effect on US exports, and higher mortgage rates squeezing consumers and making houses less affordable.
“I’d argue that these indicators tell us that the Fed has already done enough to ensure a big decline in inflation — but also, all too possibly, a recession,” Krugman said.
Jeremy Siegel
“The Fed is slamming on the brakes way too hard,” Siegel said in a recent interview.
“The pendulum has swung too far in the other direction,” the Wharton professor added, referring to US monetary policy going from too loose to overly restrictive.
“If they stay as tight as they say they will, continuing to hike rates through even the early part of next year, the risks of recession are extremely high,” Siegel said.
Bill Gross
“The US and other economies cannot stand many more rate increases,” Gross said in a recent investment outlook.
Gross argued that huge amounts of government debt, and global headwinds such as the Russia-Ukraine war, meant that if the Fed hikes rates too far, it could “slay inflation but create a global depression.”
“If Fed stops at 4.5% then mild recession,” Gross tweeted this week. “If it goes to 5% or higher then significant US and global downturn.”
David Rosenberg
“I would posit that the Fed has already done the overkill,” Rosenberg said in a recent interview.
The Rosenberg Research founder suggested Fed officials have a “once burnt, twice shy” mentality after reacting too slowly to the inflation threat, so they’re overreacting now by raising rates too aggressively.
If the Fed continues to tighten its monetary policy, it could tank house prices, spark a credit crunch in the banking sector, weaken consumer spending, and make any economic downturn last longer, Rosenberg said.
Robert Herjavec
Consumers and enterprises are still spending money, but rising interest rates will eventually stifle that demand, Herjavec said in a recent interview.
“I worry we’re going to hit a wall, and the interest rates are going to catch up to us, and the whole thing is just going to stop,” the “Shark Tank” investor and Cyderes CEO said.
Herjavec added that he’s more worried about the Fed’s “maniacal drive with interest rates” than he is about inflation.
Ed Yardeni
“I think the Fed has to be really careful here,” Yardeni said in a recent interview.
“If they keep going without pausing, it’s really going to create a real possibility of a significant recession,” he added.
The Yardeni Associates boss pointed to declining food and energy prices as evidence that inflation is on the decline. He noted the Fed’s tightening has already hammered the housing market, and fueled the stock-market’s sharp decline this year.
8/8 SLIDES
Stocks could fall back to their October lows by midyear as a looming recession is coming for the US economy, according to Evercore’s senior managing director Julian Emanuel.
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In an interview with CNBC, Emanuel warned a recession is imminent this year, and the downturn could cause the S&P 500 to slide 10% back to the 3600 level over the next three to six months. That’s because since 1962, stocks have never bottomed before the start of a recession, he warned.
“The odds of recession, given the collapse in money supply, given the rollover in leading economic indicators, given the 800-pound gorilla in the room – the yield curve – tell us we’re going to have a recession at some point. And so therefore, we see a retest of the October lows at midyear,” he said.
And while GDP has remained positive overall, economic activity has turned slightly negative in month-per-month terms, according to top economist David Rosenberg, suggesting that the economy is already beginning to contract.
Emanuel chalked up the current rally in stocks as investors becoming optimistic for soft landing. But that’s unlikely as central bankers will keep on tightening interest rates, Emanuel said, which could mean more downside for stocks. Fed officials raised interest rates 425 basis-points last year to tackle rising inflation, a move that caused the S&P 500 to lose 20%.
Experts say higher interest rates could push the economy into a recession, though central bank officials signaled more rate hikes to come, particularly as the labor market and some inflation indicators remain hot.
“The Fed’s going to just keep going until something either softens, or invariably, as it has through most of history, breaks,” Emanuel warned.
