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Is the worst for the market over? No one can say

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London (CNN Business)Some investors have had a tougher experience at the beginning of the year than just the last six months. Will be almost nonexistent. Experts have been beaten, but amateur traders accustomed to the spectacular rally in 2021 have undergone a dire reality check.

Situation: S&The P 500 has made the worst start since 1970 and plummeted by 20.6% between January and June. The Dow has the highest rate of increase since 1962, and the Nasdaq Composite has the highest rate of decline to date.
A nasty combination of situations is hammering stocks. Russia's war in Ukraine has increased inflation and exacerbated concerns about how aggressive central banks, such as the Federal Reserve, need to be to curb it. The blockade of the coronavirus in China, the world's second-largest economy, is also raising concerns.

It is very difficult to predict what will happen in the market in the next 6 months. The road to progress remains dangerous as the Federal Reserve promises to move one month at a time.

"Inflation is everything right now," Markus Schomer, Chief Economist at PineBridge Investments, told me. "That's the only thing that matters, and how the Fed responds to it."

Optimists say most of the bad news is priced at this point. believe. Schomer focused on the core price index of consumer spending, a carefully monitored inflation index that eliminates volatile food and energy costs. According to the Fed, the year-on-year rate of increase in May was 4.7%, down from 4.9% in April.

"I think the paintings are starting to come together," Schomer said. "Supply chain turmoil has eased everywhere. Commodity prices haven't fallen yet, but they haven't risen that fast. All we need is oil, which will stay at $ 100 a barrel and inflation will go down.

Of course, given the energy market situation, this is a big "if". Rising rents and house prices (a form of more tenacious inflation) also need to be monitored.

However, Schomer realized that the situation wasn't as bad as it had previously thought and bet on successfully lowering inflation without causing a recession, so Schomer went to the stock market in the second half of this year. We believe that sentiment may improve.

"If you stir this information, you probably have a stable market in the second half of the year," he said. He predicts that the stock market will be above current levels and end the year.

Others remain skeptical that the worst is behind us. Goldman Sachs strategists told clients Thursday that stocks could continue to fall later this year as "stocks are just a mild recession," and more companies could start lowering earnings expectations. Said.

In the event of a recession, Goldman's team expects the S&P 500 to be 3,600, or 4.9% below Thursday's closing price.

Everyone agrees: it will remain rocky for some time and will require an iron stomach. The Fed's job remains difficult, and there is a great risk that it will go too far, with high borrowing costs, a huge impact on business activities and personal consumption, and a reversal of growth.

“The market is likely to remain volatile as investors move between inflationary frustration and recessionary obsession until the growth / inflation combination improves. "Goldman strategist said.

OPEC and its allies maintain course even when oil prices fall

OPEC and allies, including Russia, are steadily increasing oil production Despite the pressure from the West to stick to the strategy of increasing, do more to lower oil prices.

Latest: OPEC + Group has previously decided to increase its daily production of 648,000 barrels in July and August. It announced on Thursday that it is sticking to the plan.

So, according to UBS analyst Giovannista Unovo, the production cuts announced in 2020 to address the effects of the pandemic have been "completely eliminated."

Global oil prices fell from nearly $ 123 per barrel to less than $ 112 in early June as concerns about a recession surfaced. As the economy shrinks, so does the demand for fuel.

However, many factors can push up oil prices in the medium term. Europe is working to quickly reduce Russia's dependence on oil and intensify competition for alternative barrels. In addition, OPEC + is likely to reach only half of its goal of increasing production in August as reserve capacity declines, Staunovo said.

"Several members are already struggling to increase production alongside the deal," he said in a note to his customers.

So, as demand continues to outpace supply, oil prices should rise. Staunovo forecasts global oil prices for September to be $ 130 per barrel.

Look at this space: The price outlook will pay more attention to President Joe Biden's trip to Saudi Arabia scheduled for mid-month.

Biden said Thursday that he had no plans to directly ask Crown Prince of Saudi Arabia Mohammed bin Salman to increase oil production in the Kingdom, and that responsibility lies with a wider group of Gulf countries.

High gas prices won't stop car trips on record July 4

After years of vacation and postponement of attention Americans are enthusiastic about traveling — and refuse to be deterred by high energy prices. According to AAA,

nearly48 million peopleare expected to travel more than 50 miles from their homes on the holiday weekend of July 4th. This is a 3.7% increase compared to 2021, and travel volume will return to near 2019 levels.

Expensive gasoline does not get in the way. AAA predicts that 42 million people will hit the road between June 30th and July 4th.

"Earlier this year, travel demand began to increase, but it hasn't decreased," said Paula Twidale, senior vice president of AAA Travel. "People are ready for breaks and things cost more, but they're still finding a way to get the vacation they need."

Radar: As global oil prices fall. The national average of 1 gallon of regular gasoline has returned to $ 4.84 from a record high of $ 5.02 in the middle of last month.

However, the surge in fuel demand during the peak driving season of summer will be another source of upward pressure.


The June ISM Manufacturing Index, which tracks the US industrial sector, arrives at 10 am Eastern Standard Time.

Next week: Economists expect to learn that the United States has added 295,000 jobs in June. It's still powerful, but lower than the increase of390,000 in May