Market analysts are bracing for a potential downturn in the stock market, with some predicting a correction of up to 10% by year’s end. The chief strategist at Stifel, a leading investment bank, cites a softening labor market and persistent inflation as key factors that could drive the decline.
With job openings abundant and the market trading at lofty levels, investors are being cautioned to exercise prudence in the fourth quarter. Recent data suggests the labor market is losing steam, with 18% of consumers reporting difficulty finding work in September, up from 17% the previous month.
Meanwhile, US companies announced a staggering 75,000 job cuts in August, a 193% increase from the prior month. Inflationary pressures also remain a concern, which could complicate the market’s expectations for steep rate cuts. While investors are betting on interest rates dipping to 3% or lower by mid-next year, the strategist believes this is unlikely without a slowdown in the economy – a scenario that would also weigh on stocks.
The current optimism in the market, with nearly half of investors feeling bullish on stocks for the next six months, may be misplaced. The strategist warns that the market’s frothy conditions, combined with a 31% year-to-year gain in the S&P 500, could be setting investors up for a fall. As the fourth quarter approaches, investors would do well to temper their expectations and prepare for a potential correction.
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