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Fed raises rates by 25 bps: Citi sees 10% downside in S&P 500

S&P 500 is keeping in the green today after the U.S. Federal Reserve delivered a “widely expected” 25 basis points increase in interest rates.

S&P 500 could tank 10% from here

The post-meeting statement no longer says that additional tightening may be appropriate – an omission that may hint at a “pause”.   

Still, Scott Chronert – equity strategist at Citi sees downside to 3,700 level (down 10% from here) in the benchmark index between now and the end of June. On CNBC’s “Closing Bell”, he said:

I think from here, it’s going to be the perception that second half earnings begin to falter. It’s going to be higher for longer Fed funds. That’s our house economic view.

In the back half, though, he expects the equity market to recover to the 4,000 level versus 4,130 at writing.

What else could weigh on S&P 500?

Remember that issues related to the debt ceiling as well as the recent bank failures could also serve as headwinds for the U.S. stocks.

On top of that, private payrolls increased by way more than expected 296,000 in April (source) suggesting the labour market remains hot despite all the efforts that the Federal Reserve has put into slowing the economy.

Lastly, even though the FOMC statement does signal a pause, Chair Jerome Powell confirmed in his press conference today that the central bank has not yet made a firm decision on that front.

The core personal consumption expenditures price index or the Fed’s preferred inflation gauge was up 0.3% in March as Invezz reported HERE.

The post Fed raises rates by 25 bps: Citi sees 10% downside in S&P 500 appeared first on Invezz.

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