The S&P 500 is likely to tumble 23% to 3,500 points by mid-2024, JPMorgan's charts guru says.
Jason Hunter, the bank's head of technical strategy, views a US recession as very likely.
Hunter sees cash and Treasury bonds are safer bets than stocks today.
Prepare for the S&P 500 to crash 23% by next summer and a recession to take hold, JPMorgan's top charts guru has warned.
The stock market is mistakenly pricing in a "soft landing" for the US economy, where the Federal Reserve succeeds in crushing inflation without causing a recession, Jason Hunter told CNBC's "Squawk Box" on Monday. But investors will soon realize the outlook is darker than they thought, sparking a sell-off in stocks, the bank's head of technical strategy said.
"You tend to find your way into a bear market that's eventually associated with a recession way more often than not," Hunter said, pointing to the currently inverted yield curve as a reliable indicator of economic pain. "The odds are stacked in favor of a hard landing, actually."
The Fed has hiked interest rates from nearly zero last spring to north of 5% today in a bid to curb historic inflation. Many stock investors are betting the US central bank will cut rates next year, boosting asset prices and stimulating growth. However, they may be too optimistic as the Fed is unlikely to loosen its monetary policy until the economy cools.
"We're going to have to go to stall speed," Hunter said. "That's what enables the Fed to start easing in the second half of the year."
"The market's going to have a significant gut check of whether inertia's going to carry to a recession or not," he continued. "Stocks should pull back."
The benchmark S&P 500 index is likely to slump to 3,500 by the middle of next year in a "retest of the lows" of 2022, Hunter said. His signaling algorithms are already flashing red, suggesting investors should pare their stock positions and start to hedge, he noted. Cash and 2- or 5-year Treasuries look far safer to him than equities today, he added.
More positively, Hunter suggested that stocks, buoyed by lower interest rates, could register fresh highs in 2025.
Wall Street strategists are divided over where the market is headed from here. For example, RBC's head of US equity strategy, Lori Calvasina, told Yahoo Finance on Monday that the S&P 500 could hit a record high of 5,300 points next year.
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