The stock market is in for a correction, as a trio of unfavorable factors will weigh on equity prices, according to Sam Stovall, chief investment strategist of CFRA Research.
The Wall Street veteran pointed to the strong performance of stocks so far this year, with the S&P 500 up 15% in 2024. However, the benchmark index is poised to dip 5%, he predicted, thanks to the bearish setup in interest rates, inflation, and stock valuations.
Inflation is declining but is still above the Federal Reserve's 2% target, leading central bankers to project just one rate cut by the end of the year.
Higher rates have triggered the longest-ever inversion of the 2-10 Treasury yield curve, the bond market's famous gauge of a coming recession. The indicator, which flashes when the 2-year yield surpasses the 10-year yield, has been a reliable recession signal throughout history, and economists have said that this time likely won't be different.
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