If the Fed raises by 100 BPS tomorrow we believe there is another 10% downside to the NASDAQ before October earnings.
- We believe the NASDAQ will continue to work lower as the Fed hikes its Fed Funds Rate and as Treasury yields climb. We expect the Fed’s rate hiking will stop by early next year (end of Q1).
- Companies will issue weak, full year 2023 guidance by February 2023. The combination of peak Fed Funds Rates and weak 2023 full year guidance ought to send the NASDAQ to a bottom in short order. Recall we believe the NASDAQ will bottom at 9,000 by March 2023.
- Our view is that 2023 will be a lost year for investors. The Fed will likely hold elevated rates steady for an extended period combined with a weak global economy that will remain weak for at least one year.
- QT or not to QT? Last, it will be interesting to see what the Fed says about QT this week. Last week the Fed grew its balance sheet, a far cry from its stated plan to shrink it by $95 billion in the month of September.
Read our book: Stagflation Is Imminent.