Fed Chair Powell speaks: ‘the market has to come down’

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S&P 500 is not much bothered on Thursday even after the Fed Chair Jay Powell reiterated that rates will continue to go up moving forward.

What could it mean for the benchmark index?

FOMC is expected to announce its third consecutive 75 basis points increase in interest rates at its next policy meeting on September 21st.

According to Chris Toomey – Managing Director at Morgan Stanley – there will likely be more pain ahead for the U.S. stocks as the central bank continues to lift rates. On CNBC’s “Halftime Report”, he said:

I think if we continue to see rates go up to that 4.0% and we get what we’re expecting with regards to the earnings side, you’ll see that earning risk premiums get out of whack again and you’ll have a situation where the market has to come down.

Toomey forecasts $220 in per-share earnings for the S&P 500 this year and $212 in 2023.

Tech will weigh on the S&P 500 index

Simply put, the Morgan Stanley expert sees it unlikely for equities to pull out of the bear market unless the earnings estimates come down. He expects “tech” to drive the next leg down.

Tech has been the driver for the last twelve months. And what does higher rates mean for tech? People look at it as a long duration asset. If rates continue to go higher, you have to discount that even more and that’s going to affect tech.

U.S. inflation eased to 8.50% in July (link) but is still running at a near forty-year high.

Versus its high in mid-August, the benchmark index is currently down close to 8.0%.

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