Bank of America warns the S&P 500 could drop 20% in the coming months as a recession hits

The Stock market It could face another turbulent year in 2023, with the S&P 500 seeing a dramatic correction if the US falls into a recession, according to Bank of America strategists.

In an analyst note on Monday, the strategists warned that the benchmark could fall to 3,240 points, or about 20%, from current levels if the United States enters a recession in the coming months.

History indicates that if American economy In a recession, the note said, the SPX fell during the recession, not before. “Only the March 1945-October 1945 recession saw the SPX rise before and during the recession.”

The S&P has already fallen about 16% this year as investors weigh their concerns about soaring inflation, sharp interest rate hikes and the possibility of a recession next year. But Bank of America strategists warned on Monday of the potential for further market declines in the future.

“The average decreases in the SPX and median associated with the recession are 32.5% and 27.1%, respectively, and lasted 13.1 and 14.9 months, respectively,” they wrote. “This is equivalent to SPX 3500 to SPX 3240 in February to April 2023, which corresponds to peak-to-trough declines associated with the 12-month moving average crossing below the 24-month moving average on the SPX.”

Despite a slight slowdown in consumer prices last month — inflation rose 7.7% annually, the slowest pace since January — there is still a growing consensus on Wall Street that the Fed will cause a recession as it raises interest rates at the fastest pace in decades.

The Federal Reserve in November approved its fourth consecutive rate hike by 75 basis points, raised the federal funds rate to a range of 3.75% to 4% — to restrictive levels — and showed no signs of rate hikes pausing.

Although policy makers indicated their preference for a 50 basis point rate hike at their meeting next week, they also indicated a desire for a rate hike that could further constrain economic activity.

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“The time to adjust the pace of interest rate increases may come as soon as we meet in December.” Federal Reserve Chairman Jerome Powell He said during a speech in Washington last week. “Given the progress we have made in tightening policy, the timing of this moderation is far less important than questions of how much price increases will be needed to control inflation, and the length of time that will be necessary to maintain policy at a restrictive level.”