Binky Chadha from Deutsche Bank says stocks may be facing more problems if the economy falls into recession. The bank’s chief U.S. equity and global strategist said in a note Wednesday evening that the S & P 500 could tumble all the way down to 3,000 if the U.S. economy falls into a recession in the near future. The Wednesday close at 3,923.68 was 23.5% higher than this. After back-to back earnings reports by Target and Walmart, which showed that retailers are struggling to pay higher prices and that consumers are reducing their discretionary spending, recession fears were heightened. The Federal Reserve signaled that they will continue to raise rates to stem the current inflationary spike. Chadha stated that inflation is becoming a problem and that the Fed is expecting a rate hike cycle which has traditionally ended in recession (8 of 11 and 73% respectively). The Fed acknowledges and accepts this risk. Chadha’s base case is not for an imminent recession, but the strategist did trim his year-end S & P 500 target to 4,750 from 5,250. This new target suggests upside of 21% since Wednesday’s close. His baseline view is that there will be no recession soon, and that relief rallies would recover the peak prior year-end. However, a long selloff in the late stages of the cycle may lead to a slip into a selffulfilling recession.
