The US stock market is in for a major correction. That’s the stance maintained by the head of equity strategy at Wells Fargo & Co, Chris Harvey. The remarks come on US equities remaining resilient for the better part of the year at the back of a string of shocks. The Nasdaq 100 is already up by more than 20%, and the S&P 500 is up by about 7%.
S&P 500 Correction
The drop in treasury yields has mostly fueled the rally in the equity market. A pivot by the US Federal Reserve from aggressive interest rates has also helped fuel bullish sentiments in the equity markets. Nevertheless, the rally has shown signs of weakness ahead of the crucial earning season and concerns over the global financial system.
Harvey expects the S&P 500 to correct by about 10% and therefore tank to about the 3,700 level. The downside, according to the strategy, will mostly be driven by the deteriorating economic conditions that hint at a potential recession. Aggressive monetary policy tightening and liquidity issues, such as the one experienced by the banking crisis, will likely fuel the correction.
The remarks come even as the US economy remains steadfast, depicted by a robust labor market. The March Non-Farm payroll report indicated the US economy added 236,000 jobs as the unemployment rate continued to slide to lows of 3.5%. Inflation levels have also decreased significantly, helping fuel suggestions that the economy could be cooling off.
Real Estate Struggles
Meanwhile, the real estate sector is also facing its fair share of challenges and could remain under pressure for the foreseeable future. The soaring interest rates have made it difficult for people to access cheap capital that they can use to purchase new homes. In addition, the high-interest rate environment has also triggered a significant spike in mortgage rates that’s taking a toll on many homeowners.
Amid the high-interest rate environment, the lack of sufficient inventory is also presenting a big problem to the real estate sector. For instance, in Minneapolis, there are only about 1,000 listings, three times less than a saturated market. Many people are unwilling to sell their properties as they are locked to low rates from the pandemic.
